92155 Doing Business 2015 United States Economy Profile 2015 United States Doing Business 2015 United States 2 © 2014 The International Bank for Reconstruction and Development / The World Bank 1818 H Street NW, Washington, DC 20433 Telephone: 202-473-1000; Internet: www.worldbank.org All rights reserved. 1 2 3 4 17 16 15 14 This work is a product of the staff of The World Bank with external contributions. The findings, interpretations, and conclusions expressed in this work do not necessarily reflect the views of The World Bank, its Board of Executive Directors, or the governments they represent. The World Bank does not guarantee the accuracy of the data included in this work. The boundaries, colors, denominations, and other information shown on any map in this work do not imply any judgment on the part of The World Bank concerning the legal status of any territory or the endorsement or acceptance of such boundaries. 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Doing Business 2015 United States 3 CONTENTS Introduction .................................................................................................................................. 4 The business environment .......................................................................................................... 6 Starting a business ..................................................................................................................... 16 Dealing with construction permits ........................................................................................... 27 Getting electricity ....................................................................................................................... 43 Registering property .................................................................................................................. 52 Getting credit .............................................................................................................................. 58 Protecting minority investors ................................................................................................... 64 Paying taxes ................................................................................................................................ 73 Trading across borders .............................................................................................................. 79 Enforcing contracts .................................................................................................................... 83 Resolving insolvency .................................................................................................................. 91 Labor market regulation ........................................................................................................... 94 Distance to frontier and ease of doing business ranking .................................................... 101 Resources on the Doing Business website ............................................................................ 104 Doing Business 2015 United States 4 INTRODUCTION Doing Business sheds light on how easy or difficult it is 1, 2014 (except for the paying taxes indicators, which for a local entrepreneur to open and run a small to cover the period January–December 2013). medium-size business when complying with relevant The Doing Business methodology has limitations. Other regulations. It measures and tracks changes in areas important to business—such as an economy’s regulations affecting 11 areas in the life cycle of a proximity to large markets, the quality of its business: starting a business, dealing with construction infrastructure services (other than those related to permits, getting electricity, registering property, getting trading across borders and getting electricity), the credit, protecting minority investors, paying taxes, security of property from theft and looting, the trading across borders, enforcing contracts, resolving transparency of government procurement, insolvency and labor market regulation. macroeconomic conditions or the underlying strength of In a series of annual reports Doing Business presents institutions—are not directly studied by Doing Business. quantitative indicators on business regulations and the The indicators refer to a specific type of business, protection of property rights that can be compared generally a local limited liability company operating in across 189 economies, from Afghanistan to Zimbabwe, the largest business city. Because standard assumptions over time. The data set covers 47 economies in Sub- are used in the data collection, comparisons and Saharan Africa, 32 in Latin America and the Caribbean, 25 benchmarks are valid across economies. The data not in East Asia and the Pacific, 26 in Eastern Europe and only highlight the extent of obstacles to doing business; Central Asia, 20 in the Middle East and North Africa and they also help identify the source of those obstacles, 8 in South Asia, as well as 31 OECD high-income supporting policy makers in designing regulatory reform. economies. The indicators are used to analyze economic More information is available in the full report. Doing outcomes and identify what reforms have worked, where Business 2015 presents the indicators, analyzes their and why. relationship with economic outcomes and presents This economy profile presents the Doing Business business regulatory reforms. The data, along with indicators for United States. To allow useful comparison, information on ordering Doing Business 2015, are it also provides data for other selected economies available on the Doing Business website at (comparator economies) for each indicator. The data in http://www.doingbusiness.org. this report are current as of June Doing Business 2015 United States 5 CHANGES IN DOING BUSINESS 2015 As part of a 2-year update in methodology, Doing Finally, the name of the employing workers indicator set Business 2015 incorporates 7 important changes. First, has been changed to labor market regulation, and the the ease of doing business ranking as well as all topic- scope of this indicator set has also been changed. The level rankings are now computed on the basis of indicators now focus on labor market regulation distance to frontier scores (see the chapter on the applying to the retail sector rather than the distance to frontier and ease of doing business ranking). manufacturing sector, and their coverage has been Second, for the 11 economies with a population of more expanded to include regulations on labor disputes and than 100 million, data for a second city have been added on benefits provided to workers. The labor market to the data set and the ranking calculation. These regulation indicators continue to be excluded from the economies are Bangladesh, Brazil, China, India, aggregate distance to frontier score and ranking on the Indonesia, Japan, Mexico, Nigeria, Pakistan, the Russian ease of doing business. Federation and the United States. Third, for getting Beyond these changes there are 3 other updates in credit, the methodology has been revised for both the methodology. For paying taxes, the financial statement strength of legal rights index and the depth of credit variables have been updated to be proportional to 2012 information index. The number of points has been income per capita; previously they were proportional to increased in both indices, from 10 to 12 for the strength 2005 income per capita. For enforcing contracts, the of legal rights index and from 6 to 8 for the depth of value of the claim is now set at twice the income per credit information index. In addition, only credit bureaus capita or $5,000, whichever is greater. For dealing with and registries that cover at least 5% of the adult construction permits, the cost of construction is now set population can receive a score on the depth of credit at 50 times income per capita (before, the cost was information index. assessed by the Doing Business respondents). In addition, Fourth, the name of the protecting investors indicator set this indicator set no longer includes the procedures for has been changed to protecting minority investors to obtaining a landline telephone connection. better reflect its scope—and the scope of the indicator For more details on the changes, see the “What is set has been expanded to include shareholders’ rights in changing in Doing Business?” chapter starting on page corporate governance beyond related-party transactions. 24 of the Doing Business 2015 report. For more details Fifth, the resolving insolvency indicator set has been on the data and methodology, please see the “Data expanded to include an index measuring the strength of Notes” chapter starting on page 114 of the Doing the legal framework for insolvency. Sixth, the calculation Business 2015 report. For more details on the distance to of the distance to frontier score for paying taxes has frontier metric, please see the “Distance to frontier and been changed. The total tax rate component now enters ease of doing business ranking” chapter in this profile. the score in a nonlinear fashion, in an approach different from that used for all other indicators (see the chapter on the distance to frontier and ease of doing business ranking). Doing Business 2015 United States 6 THE BUSINESS ENVIRONMENT For policy makers trying to improve their economy’s regulatory environment for business, a good place to start ECONOMY OVERVIEW is to find out how it compares with the regulatory environment in other economies. Doing Business provides an aggregate ranking on the ease of doing business Region: OECD high income based on indicator sets that measure and benchmark regulations applying to domestic small to medium-size Income category: High income businesses through their life cycle. Economies are ranked from 1 to 189 by the ease of doing business ranking. This Population: 316,128,839 year's report presents results for 2 aggregate measures: the distance to frontier score and the ease of doing GNI per capita (US$): 53,670 business ranking. The ranking of economies is determined by sorting the aggregate distance to frontier (DTF) scores. DB2015 rank: 7 The distance to frontier score benchmarks economies with respect to regulatory practice, showing the absolute DB2014 rank: 7* distance to the best performance in each Doing Business Change in rank: 0 indicator. An economy’s distance to frontier score is indicated on a scale from 0 to 100, where 0 represents the DB 2015 DTF: 82 worst performance and 100 the frontier. (See the chapter on the distance to frontier and ease of doing business). DB 2014 DTF: 82 The 10 topics included in the ranking in Doing Business 2015: starting a business, dealing with construction Change in DTF: 0 permits, getting electricity, registering property, getting credit, protecting minority investors, paying taxes, trading * DB2014 ranking shown is not last year’s published across borders, enforcing contracts and resolving ranking but a comparable ranking for DB2014 that insolvency. The labor market regulation indicators captures the effects of such factors as data (formerly employing workers) are not included in this corrections and the changes in methodology. See year’s aggregate ease of doing business ranking, but the the data notes starting on page 114 of the Doing data are presented in this year’s economy profile. Business 2015 report for sources and definitions. The aggregate ranking on the ease of doing business benchmarks each economy’s performance on the indicators against that of all other economies in the Doing Business sample (figure 1.1). While this ranking tells much about the business environment in an economy, it does not tell the whole story. The ranking on the ease of doing business, and the underlying indicators, do not measure all aspects of the business environment that matter to firms and investors or that affect the competitiveness of the economy. Still, a high ranking does mean that the government has created a regulatory environment conducive to operating a business. Doing Business 2015 United States THE BUSINESS ENVIRONMENT Figure 1.1 Where economies stand in the global ranking on the ease of doing business Source: Doing Business database. Doing Business 2015 United States THE BUSINESS ENVIRONMENT For policy makers, knowing where their economy regional average (figure 1.2). The economy’s rankings stands in the aggregate ranking on the ease of doing (figure 1.3) and distance to frontier scores (figure 1.4) business is useful. Also useful is to know how it ranks on the topics included in the ease of doing business relative to comparator economies and relative to the ranking provide another perspective. Figure 1.2 How United States and comparator economies rank on the ease of doing business Note: The rankings are benchmarked to June 2014 and based on the average of each economy’s distance to frontier (DTF) scores for the 10 topics included in this year’s aggregate ranking. The distance to frontier score benchmarks economies with respect to regulatory practice, showing the absolute distance to the best performance in each Doing Business indicator. An economy’s distance to frontier score is indicated on a scale from 0 to 100, where 0 represents the worst performance and 100 the frontier. For the economies for which the data cover 2 cities, scores are a population-weighted average for the 2 cities. Source: Doing Business database. Doing Business 2015 United States 9 THE BUSINESS ENVIRONMENT Figure 1.3 Rankings on Doing Business topics - United States (Scale: Rank 189 center, Rank 1 outer edge) Figure 1.4 Distance to frontier scores on Doing Business topics - United States (Scale: Score 0 center, Score 100 outer edge) Note: The rankings are benchmarked to June 2014 and based on the average of each economy’s distance to frontier (DTF) scores for the 10 topics included in this year’s aggregate ranking. The distance to frontier score benchmarks economies with respect to regulatory practice, showing the absolute distance to the best performance in each Doing Business indicator. An economy’s distance to frontier score is indicated on a scale from 0 to 100, where 0 represents the worst performance and 100 the frontier. For the economies for which the data cover 2 cities, scores are a population-weighted average for the 2 cities. Source: Doing Business database. Doing Business 2015 United States 10 THE BUSINESS ENVIRONMENT Just as the overall ranking on the ease of doing business tells Doing Business introduced the distance to frontier score. This only part of the story, so do changes in that ranking. Yearly measure shows how far on average an economy is from the movements in rankings can provide some indication of best performance achieved by any economy on each Doing changes in an economy’s regulatory environment for firms, Business indicator. but they are always relative. Comparing the measure for an economy at 2 points in time Moreover, year-to-year changes in the overall rankings do allows users to assess how much the economy’s regulatory not reflect how the business regulatory environment in an environment as measured by Doing Business has changed economy has changed over time—or how it has changed in over time—how far it has moved toward (or away from) the different areas. To aid in assessing such changes, most efficient practices and strongest regulations in areas covered by Doing Business (figure 1.5). Figure 1.5 How far has United States come in the areas measured by Doing Business? Note: The distance to frontier score shows how far on average an economy is from the best performance achieved by any economy on each Doing Business indicator since 2010, except for getting credit, paying taxes, protecting minority investors and resolving insolvency which had methodology changes in 2014 and thus are only comparable to 2013. The measure is normalized to range between 0 and 100, with 100 representing the best performance (the frontier). See the data notes starting on page 114 of the Doing Business 2015 report for more details on the distance to frontier score. Source: Doing Business database. Doing Business 2015 United States 11 THE BUSINESS ENVIRONMENT The absolute values of the indicators tell another part of regulation—such as a regulatory process that can be the story (table 1.1). The indicators, on their own or in completed with a small number of procedures in a few comparison with the indicators of a good practice days and at a low cost. Comparison of the economy’s economy or those of comparator economies in the indicators today with those in the previous year may region, may reveal bottlenecks reflected in large numbers show where substantial bottlenecks persist—and where of procedures, long delays or high costs. Or they may they are diminishing. reveal unexpected strengths in an area of business Table 1.1 Summary of Doing Business indicators for United States United Kingdom DB2015 Best performer globally Hong Kong SAR, China New York City DB2015 United States DB2015 United States DB2014 Los Angeles DB2015 Germany DB2015 Canada DB2015 Indicator DB2015 DB2015 Starting a Business 46 41 -- -- 2 114 8 45 New Zealand (1) (rank) Starting a Business (DTF 91.22 91.06 91.59 90.66 98.82 81.38 96.38 91.23 New Zealand (99.96) Score) Procedures (number) 6.0 6.0 6.0 6.0 1.0 9.0 3.0 6.0 New Zealand (1.0)* Time (days) 5.6 6.2 4.0 8.0 5.0 14.5 2.5 6.0 New Zealand (0.5) Cost (% of income per 1.2 1.2 1.4 0.8 0.4 8.8 1.4 0.3 Slovenia (0.0) capita) Paid-in min. capital (% 0.0 0.0 0.0 0.0 0.0 35.8 0.0 0.0 112 Economies (0.0)* of income per capita) Dealing with Hong Kong SAR, Construction Permits 41 43 -- -- 118 8 1 17 China (1) (rank) Dealing with Hong Kong SAR, Construction Permits 78.87 78.75 80.10 77.04 67.12 87.42 95.53 85.06 China (95.53) (DTF Score) Doing Business 2015 United States 12 United Kingdom DB2015 Best performer globally Hong Kong SAR, China New York City DB2015 United States DB2015 United States DB2014 Los Angeles DB2015 Germany DB2015 Canada DB2015 Indicator DB2015 DB2015 Hong Kong SAR, Procedures (number) 15.8 15.8 15.0 17.0 12.0 8.0 5.0 9.0 China (5.0) Time (days) 78.6 78.6 89.0 63.0 249.0 96.0 66.0 105.0 Singapore (26.0) Cost (% of warehouse 1.0 1.1 0.3 2.0 1.3 1.1 0.4 1.2 Qatar (0.0)* value) Getting Electricity 61 58 -- -- 150 3 13 70 Korea, Rep. (1) (rank) Getting Electricity (DTF 79.52 79.51 88.30 66.35 59.27 98.37 91.54 78.42 Korea, Rep. (99.83) Score) Procedures (number) 4.8 4.8 4.0 6.0 7.0 3.0 4.0 4.0 12 Economies (3.0)* Time (days) 89.6 89.6 60.0 134.0 142.0 28.0 38.0 126.0 Korea, Rep. (18.0)* Cost (% of income per 25.5 27.2 14.6 41.9 131.0 44.4 1.4 90.1 Japan (0.0) capita) Registering Property 29 30 -- -- 55 89 96 68 Georgia (1) (rank) Registering Property 82.92 82.85 82.34 83.79 76.20 67.78 66.19 72.55 Georgia (99.88) (DTF Score) Procedures (number) 4.4 4.4 4.0 5.0 6.0 5.0 5.0 6.0 4 Economies (1.0)* Time (days) 15.2 15.2 12.0 20.0 16.5 40.0 35.5 21.5 3 Economies (1.0)* Cost (% of property 2.4 2.5 3.4 0.9 3.3 6.7 7.7 4.6 4 Economies (0.0)* value) Getting Credit (rank) 2 1 -- -- 7 23 23 17 New Zealand (1) Getting Credit (DTF 95.00 95.00 95.00 95.00 85.00 70.00 70.00 75.00 New Zealand (100) Score) Strength of legal rights 11 11 11 11 9 6 7 7 3 Economies (12)* index (0-12) Doing Business 2015 United States 13 United Kingdom DB2015 Best performer globally Hong Kong SAR, China New York City DB2015 United States DB2015 United States DB2014 Los Angeles DB2015 Germany DB2015 Canada DB2015 Indicator DB2015 DB2015 Depth of credit 8 8 8 8 8 8 7 8 23 Economies (8)* information index (0-8) Credit registry coverage 0.0 0.0 0.0 0.0 0.0 1.3 0.0 0.0 Portugal (100.0) (% of adults) Credit bureau coverage 100.0 100.0 100.0 100.0 100.0 100.0 96.1 100.0 23 Economies (100.0)* (% of adults) Protecting Minority 25 21 -- -- 7 51 2 4 New Zealand (1) Investors (rank) Protecting Minority 65.83 65.83 65.83 65.83 72.50 59.17 80.83 78.33 New Zealand (81.67) Investors (DTF Score) Extent of conflict of interest regulation 8.3 8.3 8.3 8.3 8.7 5.0 9.0 8.3 Singapore (9.3)* index (0-10) Extent of shareholder governance index (0- 4.8 4.8 4.8 4.8 5.8 6.8 7.2 7.3 France (7.8)* 10) Strength of minority investor protection 6.6 6.6 6.6 6.6 7.3 5.9 8.1 7.8 New Zealand (8.2) index (0-10) United Arab Emirates Paying Taxes (rank) 47 44 -- -- 9 68 4 16 (1)* Paying Taxes (DTF United Arab Emirates 80.84 80.85 79.65 82.62 93.00 77.02 98.51 90.52 Score) (99.44)* Payments (number per Hong Kong SAR, 10.6 10.6 11.0 10.0 8.0 9.0 3.0 8.0 year) China (3.0)* Time (hours per year) 175.0 175.0 175.0 175.0 131.0 218.0 78.0 110.0 Luxembourg (55.0) Trading Across Borders 16 15 -- -- 23 18 2 15 Singapore (1) (rank) Trading Across Borders 88.25 88.34 88.40 88.01 86.07 87.67 95.36 88.32 Singapore (96.47) Doing Business 2015 United States 14 United Kingdom DB2015 Best performer globally Hong Kong SAR, China New York City DB2015 United States DB2015 United States DB2014 Los Angeles DB2015 Germany DB2015 Canada DB2015 Indicator DB2015 DB2015 (DTF Score) Documents to export 3 3 3 3 3 4 3 4 Ireland (2)* (number) Time to export (days) 6.0 6.0 6.0 6.0 8.0 9.0 6.0 8.0 5 Economies (6.0)* Cost to export (US$ per 1,224.0 1,164.0 1,190.0 1,275.0 1,680.0 1,015.0 590.0 1,005.0 Timor-Leste (410.0) container) Cost to export (deflated 1,224.0 1,181.6 1,190.0 1,275.0 1,680.0 1,015.0 590.0 1,005.0 US$ per container) Documents to import 5 5 5 5 3 4 3 4 Ireland (2)* (number) Time to import (days) 5.4 5.4 5.0 6.0 10.0 7.0 5.0 6.0 Singapore (4.0) Cost to import (US$ per 1,289.0 1,289.0 1,315.0 1,250.0 1,680.0 1,050.0 565.0 1,050.0 Singapore (440.0) container) Cost to import (deflated 1,289.0 1,308.5 1,315.0 1,250.0 1,680.0 1,050.0 565.0 1,050.0 US$ per container) Enforcing Contracts 41 41 -- -- 65 13 6 36 Singapore (1) (rank) Enforcing Contracts 67.26 67.26 73.16 58.42 63.76 76.74 80.32 68.08 Singapore (89.54) (DTF Score) Time (days) 420.0 420.0 370.0 495.0 570.0 394.0 360.0 437.0 Singapore (150.0) Cost (% of claim) 30.5 30.5 22.9 42.0 22.3 14.4 21.2 39.9 Iceland (9.0) Procedures (number) 33.6 33.6 32.0 36.0 36.0 31.0 26.0 29.0 Singapore (21.0)* Resolving Insolvency 4 4 -- -- 6 3 25 13 Finland (1) (rank) Resolving Insolvency 90.12 90.12 90.74 89.20 89.17 91.78 75.06 82.04 Finland (93.85) (DTF Score) Doing Business 2015 United States 15 United Kingdom DB2015 Best performer globally Hong Kong SAR, China New York City DB2015 United States DB2015 United States DB2014 Los Angeles DB2015 Germany DB2015 Canada DB2015 Indicator DB2015 DB2015 Time (years) 1.5 1.5 1.5 1.5 0.8 1.2 0.8 1.0 Ireland (0.4) Cost (% of estate) 8.2 8.2 7.0 10.0 7.0 8.0 5.0 6.0 Norway (1.0) Outcome (0 as piecemeal sale and 1 as 1 1 1 1 1 1 1 1 going concern) Recovery rate (cents on 80.4 80.4 81.5 78.6 87.3 83.4 87.2 88.6 Japan (92.9) the dollar) Strength of insolvency 15.0 15.0 15.0 15.0 13.5 15.0 9.0 11.0 5 Economies (15.0)* framework index (0-16) Note: DB2014 rankings shown are not last year’s published rankings but comparable rankings for DB2014 that capture the effects of s uch factors as data corrections and changes to the methodology. Trading across borders deflated and non-deflated values are identical in DB2015 because it is defined as the base year for the deflator. The best performer on time for paying taxes is defined as the lowest time recorded among all economies in the DB2015 sample that levy the 3 major taxes: profit tax, labor taxes and mandatory contributions, and VAT or sales tax. If an economy has no laws or regulations covering a specific area—for example, insolvency—it receives a “no practice” mark. Similarly, an economy receives a “no practice” or “not possible” mark if regulation exists but is never used in practice or if a competing regulation prohibits such practice. Either way, a “no practice” mark puts the economy at the bottom of the ranking on the relevant indicator. * Two or more economies share the top ranking on this indicator. A number shown in place of an economy’s name indicates the number of economies that share the top ranking on the indicator. For a list of these economies, see the Doing Business website (http://www.doingbusiness.org). Source: Doing Business database. Doing Business 2015 United States 16 STARTING A BUSINESS Formal registration of companies has many WHAT THE STARTING A BUSINESS immediate benefits for the companies and for business owners and employees. Legal entities can INDICATORS MEASURE outlive their founders. Resources are pooled as several shareholders join forces to start a company. Procedures to legally start and operate a Formally registered companies have access to company (number) services and institutions from courts to banks as well Preregistration (for example, name as to new markets. And their employees can benefit verification or reservation, notarization) from protections provided by the law. An additional benefit comes with limited liability companies. These Registration in the economy’s largest limit the financial liability of company owners to their business city 1 investments, so personal assets of the owners are not Postregistration (for example, social security put at risk. Where governments make registration registration, company seal) easy, more entrepreneurs start businesses in the formal sector, creating more good jobs and Time required to complete each procedure generating more revenue for the government. (calendar days) What do the indicators cover? Does not include time spent gathering information Doing Business measures the ease of starting a business in an economy by recording all procedures Each procedure starts on a separate day (2 officially required or commonly done in practice by procedures cannot start on the same day). an entrepreneur to start up and formally operate an Procedures that can be fully completed industrial or commercial business—as well as the online are recorded as ½ day. time and cost required to complete these procedures. Procedure completed once final document is It also records the paid-in minimum capital that received companies must deposit before registration (or within 3 months). The ranking of economies on the No prior contact with officials ease of starting a business is determined by sorting Cost required to complete each procedure their distance to frontier scores for starting a (% of income per capita) business. These scores are the simple average of the distance to frontier scores for each of the component Official costs only, no bribes indicators. No professional fees unless services required To make the data comparable across economies, by law Doing Business uses several assumptions about the Paid-in minimum capital (% of income business and the procedures. It assumes that all per capita) information is readily available to the entrepreneur and that there has been no prior contact with Deposited in a bank or with a notary before officials. It also assumes that the entrepreneur will registration (or within 3 months) pay no bribes. And it assumes that the business:  Is a limited liability company, located in the  Has a start-up capital of 10 times income per largest business city and is 100% domestically capita. owned . 1  Has a turnover of at least 100 times income per  Has between 10 and 50 employees. capita.  Conducts general commercial or industrial  Does not qualify for any special benefits. activities.  Does not own real estate. 1 For the 11 economies with a population of more than 100 million, data for a second city have been added. Doing Business 2015 United States 17 STARTING A BUSINESS Where does the economy stand today? What does it take to start a business in United States? largest business city of an economy, except for 11 According to data collected by Doing Business, starting a economies for which the data are a population-weighted business there requires 6.0 procedures, takes 5.6 days, average of the 2 largest business cities. See the chapter costs 1.2% of income per capita and requires paid-in on distance to frontier and ease of doing business minimum capital of 0.0% of income per capita (figure ranking at the end of this profile for more details. 2.1). Most indicator sets refer to a case scenario in the Figure 2.1 What it takes to start a business in United States - New York City Paid-in minimum capital (% of income per capita): 0.0 Doing Business 2015 United States 18 What it takes to start a business in United States - Los Angeles Note: Time shown in the figure above may not reflect simultaneity of procedures. Online procedures account for 0.5 days in the total time calculation. For more information on the methodology of the starting a business indicators, see the Doing Business website (http://www.doingbusiness.org). For details on the procedures reflected here, see the summary at the end of this chapter. Source: Doing Business database. Doing Business 2015 United States 19 STARTING A BUSINESS Globally, United States stands at 46 in the ranking of 189 average ranking provide other useful information for economies on the ease of starting a business (figure 2.2). assessing how easy it is for an entrepreneur in United The rankings for comparator economies and the regional States to start a business. Figure 2.2 How United States and comparator economies rank on the ease of starting a business Source: Doing Business database. Doing Business 2015 United States 20 STARTING A BUSINESS Economies around the world have taken steps making it they often are part of a larger regulatory reform easier to start a business—streamlining procedures by program. Among the benefits have been greater firm setting up a one-stop shop, making procedures simpler satisfaction and savings and more registered businesses, or faster by introducing technology and reducing or financial resources and job opportunities. eliminating minimum capital requirements. Many have What business registration reforms has Doing Business undertaken business registration reforms in stages—and recorded in United States (table 2.1)? Table 2.1 How has United States made starting a business easier —or not? By Doing Business report year from DB2010 to DB2015 DB year Reform In the United States starting a business became easier in New DB2015 York City thanks to faster online procedures. Note: For information on reforms in earlier years (back to DB2005), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Source: Doing Business database. Doing Business 2015 United States 21 STARTING A BUSINESS What are the details? Underlying the indicators shown in this chapter for STANDARDIZED COMPANY United States is a set of specific procedures —the bureaucratic and legal steps that an entrepreneur must complete to incorporate and register a new Legal form: NY Limited Liability Company firm. These are identified by Doing Business through collaboration with relevant local professionals and Paid in minimum capital requirement: USD 0 the study of laws, regulations and publicly available City: New York City, Los Angeles information on business entry in that economy. Following is a detailed summary of those procedures, Start-up Capital: 10 times GNI per capita along with the associated time and cost. These procedures are those that apply to a company matching the standard assumptions (the “standardized company”) used by Doing Business in collecting the data (see the section in this chapter on what the indicators measure). Table 2.2 Summary of time, cost and procedures for starting a business in United States - New York City Time to No. Procedure Cost to complete complete Reserve the company's business name (optional), file the company's articles of organization and adopt the company's operating agreement The company founders may reserve the name of the company with the New York State Department of State Division of Corporations prior to filing the company's articles of organization. To reserve a name, the founders should file an application for Reservation of Name and pay a fee of USD 20. The application holds the name for 60 days and may be extended twice for additional periods of 60 days. The fee to extend the reservation of name is also USD 20. The company name must contain the words "Limited Liability Company," "L.L.C.," or "LLC." USD 275 (USD 200 The founders must file the company's articles of organization with the Less than one day filing fee, USD 75 1 New York Department of State Division of Corporations. Forms can be (online procedure) expedited service purchased at a legal supply store or downloaded from the department’s fee) website. The application processing time is about seven business days. However, optional expedited processing is available according to the following fee schedule: - 2-hour turnaround: USD 150 (additional fee) - Same-day service: USD 75 (additional fee) - 24-hour turnaround: USD 25 (additional fee) New York State requires an LLC to have a written operating agreement but such agreement does not have to be filed with the state. The business members may enter into an operating agreement before, at the time of, or within 90 days after the filing of the articles of organization. Regardless of when such an agreement was entered into, it may be effective upon the formation of the LLC or at a later date Doing Business 2015 United States 22 Time to No. Procedure Cost to complete complete specified in the operating agreement (provided, however, that under no circumstances shall an operating agreement become effective prior to the formation of such company). Agency: New York State Department of State, Division of Corporations Apply for federal identification number (EIN) for tax and employer purposes The company needs to apply for a federal Employer Identification Number ("EIN"), which is used for tax and employer purposes. Founders must file IRS Form SS-4 (available from the US Internal Revenue Service). Less than one day 2 no charge It is possible to apply online (processing time: immediate), by telephone (online procedure) (processing time: immediate), by fax (processing time: 4 business days), or by mail (processing time: 4 weeks). If applicants apply online, they do not need fill out IRS Form SS-4. Agency: US Internal Revenue Service Register to collect state sales tax Businesses that "sell taxable tangible personal property, perform taxable services, receive amusement charges, or operate a hotel or motel, and restaurants, taverns, or other establishments that sell food and drink" must register as a sales tax vendor and obtain a Certificate of Authority, as well as those businesses that buy and sell for resale (for example, a wholesale distributor). See the Department of Taxation and Finance's Official Publication 750, "A Guide to Sales Tax in New York State." Less than one day 3 no charge (online procedure) To register, the founders must file Form DTF-17 or register online at the website of the New York State Department of Taxation and Finance. After the company has registered, it generally must file quarterly sales and use tax returns regardless of whether it has started or done any business. Agency: New York State Department of Taxation and Finance Register as an employer with the Unemployment Insurance Division at the State Labor Department Founders must register as an employer by completing Form NYS-100 to determine whether or not the company is liable under the New York Less than one day 4 no charge State Unemployment Insurance Law. If the company is determined (online procedure) liable, the Department of Labor will send the company quarterly combined withholding, wage reporting and unemployment insurance returns for reporting wages paid to the company's employees. General business employers may register online at the New York State Doing Business 2015 United States 23 Time to No. Procedure Cost to complete complete Department of Labor website or by completing Form NYS-100 and submitting it by mail or fax. Agency: New York State Department of Labor Arrange for workers' compensation and disability insurance As New York employers, the LLC founders must obtain and maintain workers’ compensation insurance and disability insurance for its employees by purchasing a workers’ compensation insurance policy and a disability benefits insurance policy from an authorized private insurance carrier or through the NYS Insurance Fund (or by self- insurance for workers' compensation). The company’s federal Employer Identification Number (""EIN"") is the 5 company’s primary identification with respect to communications with 1 day no charge the Workers’ Compensation Board or by becoming a member of a group self-insurer authorized by the board. The company must give its EIN to its insurance carrier when obtaining or maintaining its workers’ compensation or disability coverage. Workers’ compensation insurance floor is calculated using each employee’s risk classification, salary, and total payroll. Agency: New York State Workers' Compensation Board Arrange for publication and submit certificate and affidavits of publication Section 206 of the New York State Limited Liability Company Law requires that within 120 days (after the effectiveness of the initial articles of organization), a limited liability company (LLC) must publish in two newspapers a copy of the Articles of Organization or a notice related to the formation of the LLC once a week for six successive weeks. The newspapers must be designated by the county clerk of the county in which the office of the LLC is located, as stated in the Articles of Organization. The State of New York website has a directory of all New York county 1 day USD 475 6 websites (http://www.nysegov.com/citguide.cfm?context=citguide&content=mu nibycounty1), which entrepreneurs can use as a reference to find their relevant county for publishing. The cost of notice of publication varies by county. After publication, the printer or publisher of each newspaper will provide the entrepreneur with a Certificate of Publication, with the affidavits of publication of the newspapers attached. It must be submitted to the New York Department of State, Division of Corporations, One Commerce Plaza, 99 Washington Avenue, Albany, NY 12231. The fee for filing the Certificate of Publication is USD 50. Doing Business 2015 United States 24 Time to No. Procedure Cost to complete complete Agency: New York State Department of State, Division of Corporations * Takes place simultaneously with another procedure. Note: Online procedures account for 0.5 days in the total time calculation. Source: Doing Business database. Summary of time, cost and procedures for starting a business in United States - Los Angeles Time to No. Procedure Cost to complete complete Reserve the company name and file the Articles of Organization Organization of the company (i.e., company registration) has to be done in person at the office of the Secretary of State of California located in Sacramento. The formation date is the date in which the document is received and accepted by the Secretary of State. The company may hire a “messenger” located in Sacramento to file on its behalf so that founders do not have to personally go to the Secretary of State office. The fee for hiring a messenger would be USD 20 in addition to the official company organization fees. The name of the limited liability company may not contain the words ""bank,"" ""trust,"" ""trustee,"" ""incorporated,"" ""inc.,"" ""corporation,"" or ""corp.,"" and the name must not contain the words ""insurer"" or ""insurance company or any other words suggesting that it is in the USD 70 (official fee business of issuing policies of insurance and assuming insurance risks. for organization of 2 days (with 24- an LLC) + USD 10 1 hour rush filing) Pursuant to Section 17702.01, Articles of Organization shall contain the (name reservation below statement: fee) + USD 350 (24- THE PURPOSE OF THE LIMITED LIABILITY COMPANY IS TO ENGAGE IN hour rush fee) ANY LAWFUL ACT OR ACTIVITY FOR WHICH A LIMITED LIABILITY COMPANY MAY BE ORGANIZED UNDER THE CALIFORNIA REVISED UNIFORM LIMITED LIABILITY COMPANY ACT. The special handling fee or preclearance and expedited filing services are not applicable to documents submitted by mail. In addition to the time-frames specified in the previous year report, the Secretary of State offers a 4-hour expedited filing service for additional $500.00 to those who precleared their documents, i.e. submitted their documents for review in advance and paid special fee. Agency: Secretary of State of California Apply for a Federal Employer Identification Number (EIN) The company needs to apply for the federal employer identification Less than one day 2 no charge number (""EIN""), used for tax and employer purposes, founders must (online procedure) file IRS Form SS-4 (available from the US Internal Revenue Service). Doing Business 2015 United States 25 Time to No. Procedure Cost to complete complete It is possible to apply online (processing time: immediate), by telephone (processing time: immediate), by fax (processing time: 4 business days) or by mail (processing time: 4 weeks). Agency: US Internal Revenue Service Register for California State Sales Tax and Obtain Seller’s Permit from the California Board of Equalization Businesses that are either: (i) engaged in business in California; (ii) intend to sell or lease tangible personal property that would ordinarily be subject to sales tax if sold at retail (this includes wholesalers, manufactures and retailers.); or (iii) will make sales for a temporary period, normally lasting no longer than 90 days at one or more locations (for example, fireworks booth, Christmas tree lots, garage sale) must register for a seller’s permit with Less than one day 3 no charge Board of Equalization (""BOE"") . (online procedure) A company may register online at the BOE website or in person at one of the BOE field offices. After the company has registered, the BOE assigns a filing frequency (quarterly prepay, quarterly, monthly, fiscal yearly, yearly) based on your reported sales tax or your anticipated taxable sales at the time of registration. Agency: Board of Equalization Register for taxes with the City of Los Angeles and Obtain the Tax Registration Certificate (TRC) Pursuant to Section 21.03 of the Los Angeles Municipal Code (Imposition of Tax), every person engaged in any trade, calling, occupation, vocation, profession or other means of livelihood in the City of Los Angeles, must obtain a Tax Registration Certificate (TRC) and pay the required business tax due, specified in Sections 21.41 to 21.199 of the Business Tax Ordinance. The Office of Finance of the City of Los Angeles is responsible for the collection of business taxes. The amount of business tax due is based on the company’s gross receipts generated during the previous reporting period, subject to applicable reductions Less than one day 4 no charge under City Clerk Rulings. (online procedure) After submitting the online application, a temporary business tax registration certificate will be issued for the company to print and display at its place of business (please see below a sample TRC certificate for a Professional Corporation, similar to that of a Limited Liability Company as an example). A permanent certificate will be sent via mail and should arrive within 4 weeks from completing the online registration. Inspectors may sometimes pass by the business premises to make sure that this certificate is properly displayed and that the taxpayer company has fulfilled all of its tax duties. Doing Business 2015 United States 26 Time to No. Procedure Cost to complete complete Agency: City of Los Angeles Office of Finance Register for the California State Employer Payroll Tax Account Number All employers conducting business in California are subject to the employment tax laws of the California Unemployment Insurance Code (CUIC). Pursuant to Section 1086 of the California Unemployment Insurance Code, every employer in California must register for employer tax payroll number. Once a business hires an employee, the business is considered an employer and must register with the Employment Less than one day 5 no charge Development Department (EDD) within 15 days after paying wages in (online procedure) excess of $100 in a quarter. No distinction is made between full-time and part-time or permanent and temporary employees in meeting this requirement. Agency: Employment Development Department File a Statement of Information with the California Secretary of State Pursuant to Article 2 (Formation: Articles of Organization and Other Filings [17702.09]) of the California Revised Uniform Limited Liability Company Act (RULLCA), every registered limited liability company must file a Statement of Information with the Secretary of State in Sacramento within 90 days after filing of its original Articles of Organization. In addition, a Statement of Information must be filed 4 days USD 20 6 every 2 years thereafter during the applicable filing period. The Statement of Information is to be filed on form LLC-12 by mailing the form to the Secretary of State with a USD 20 filing fee. It can also be delivered in person to the Secretary of State's Sacramento office. Agency: Secretary of State of California * Takes place simultaneously with another procedure. Note: Online procedures account for 0.5 days in the total time calculation. Source: Doing Business database. Doing Business 2015 United States 27 DEALING WITH CONSTRUCTION PERMITS Regulation of construction is critical to protect the WHAT THE DEALING WITH CONSTRUCTION public. But it needs to be efficient, to avoid excessive PERMITS INDICATORS MEASURE constraints on a sector that plays an important part in every economy. Where complying with building regulations is excessively costly in time and money, Procedures to legally build a warehouse many builders opt out. They may pay bribes to pass (number) inspections or simply build illegally, leading to Submitting all relevant documents and hazardous construction that puts public safety at risk. obtaining all necessary clearances, licenses, Where compliance is simple, straightforward and permits and certificates inexpensive, everyone is better off. Submitting all required notifications and What do the indicators cover? receiving all necessary inspections Doing Business records the procedures, time and cost Obtaining utility connections for water and for a business in the construction industry to obtain sewerage all the necessary approvals to build a warehouse in Registering the warehouse after its the economy’s largest business city, connect it to completion (if required for use as collateral or basic utilities and register the warehouse so that it for transfer of the warehouse) can be used as collateral or transferred to another Time required to complete each procedure entity. (calendar days) The ranking of economies on the ease of dealing with Does not include time spent gathering construction permits is determined by sorting their information distance to frontier scores for dealing with Each procedure starts on a separate day. construction permits. These scores are the simple Procedures that can be fully completed online average of the distance to frontier scores for each of are recorded as ½ day. the component indicators. Procedure considered completed once final To make the data comparable across economies, document is received Doing Business uses several assumptions about the business and the warehouse, including the utility No prior contact with officials connections. Cost required to complete each procedure (% The business: of warehouse value) Official costs only, no bribes  Is a limited liability company operating in the construction business and located in  Will have complete architectural and the largest business city. For the 11 technical plans prepared by a licensed economies with a population of more than architect or engineer. 100 million, data for a second city have  Will be connected to water and sewerage been added. Is domestically owned and (sewage system, septic tank or their operated. equivalent). The connection to each utility  Has 60 builders and other employees. network will be 150 meters (492 feet) long. The warehouse:  Will be used for general storage, such as of books or stationery (not for goods requiring  Is valued at 50 times income per capita. special conditions).  Is a new construction (there was no  Will take 30 weeks to construct (excluding all previous construction on the land). delays due to administrative and regulatory requirements). Doing Business 2015 United States 28 DEALING WITH CONSTRUCTION PERMITS Where does the economy stand today? What does it take to comply with the formalities to build business city of an economy, except for 11 economies for a warehouse in United States? According to data which the data are a population-weighted average of the collected by Doing Business, dealing with construction 2 largest business cities. See the chapter on distance to permits there requires 15.8 procedures, takes 78.6 days frontier and ease of doing business ranking at the end of and costs 1.0% of the warehouse value (figure 3.1). this profile for more details. Most indicator sets refer to a case scenario in the largest Figure 3.1 What it takes to comply with formalities to build a warehouse in United States - New York City Doing Business 2015 United States 29 What it takes to comply with formalities to build a warehouse in United States - Los Angeles Note: Time shown in the figure above may not reflect simultaneity of procedures. Online procedures account for 0.5 days in the total time calculation. For more information on the methodology of the dealing with construction permits indicators, see the Doing Business website (http://www.doingbusiness.org). For details on the procedures reflected here, see the summary at the end of this chapter. Source: Doing Business database. Doing Business 2015 United States 30 DEALING WITH CONSTRUCTION PERMITS Globally, United States stands at 41 in the ranking of 189 other useful information for assessing how easy it is for economies on the ease of dealing with construction an entrepreneur in United States to legally build a permits (figure 3.2). The rankings for comparator warehouse. economies and the regional average ranking provide Figure 3.2 How United States and comparator economies rank on the ease of dealing with construction permits Source: Doing Business database. Doing Business 2015 United States 31 DEALING WITH CONSTRUCTION PERMITS What are the details? The indicators reported here for United States are BUILDING A WAREHOUSE based on a set of specific procedures—the steps that a company must complete to legally build a warehouse—identified by Doing Business through Estimated cost of information collected from experts in construction USD 2,697,696 construction : licensing, including architects, civil engineers, construction lawyers, construction firms, utility New York City, Los service providers and public officials who deal with City : Angeles building regulations. These procedures are those that apply to a company and structure matching the The procedures, along with the associated time and cost, standard assumptions used by Doing Business in are summarized below. collecting the data (see the section in this chapter on what the indicators cover). Table 3.2 Summary of time, cost and procedures for dealing with construction permits in United States - New York City Time to No. Procedure Cost to complete complete Submit the new Zoning Diagram (ZD1), PW1, Schedule A, Form TR2 & TR3 and obtain approval BuildCo must submit the Zoning Diagram (ZD1), PW1 and Schedule A. PW1 Plan/Work Approval Application must include information about the project such as a description, intended location, etc. However, separate PW1 applications must be filed for: 1. General construction 2. Sprinkler protection 3. Fire alarm 4. Standpipe System 5. Boiler 6. Plumbing 7. Pavement 8. Foundation and earth work 1 9. Electrical 30 days USD 2,040 10. Elevator/lift (to comply with law on disability) A fee of $165 is paid for each PW1 filing. BuildCo has a choice of paying half of this amount with PW1 filing, and the remaining balance with PW2 filing. But the majority of customers choose to pay the full amount upfront with PW1. For Forms TR2 and TR3, the director of the licensed concrete laboratory must provide his/her name, sign and date the report, and place his/her seal in the space provided identifying responsibility of conducting the testing in accordance with Building Code 1905.6 and Building Code 1704.1. Agency: New York City Department of Buildings (DOB) Doing Business 2015 United States 32 Time to No. Procedure Cost to complete complete Request and obtain plan approval from the New York City Department of Buildings (DOB) The applicant must be either a Registered Architect (RA) or a Professional Engineer (PE) to submit the plans. The Department of Buildings (DOB) reviews construction plans to ensure that they comply with the Building Code and meet current safety standards and zoning requirements. Once plans are approved, a contractor or contractor’s representative may apply for a construction work permit. Simple projects, as in the case of BuildCo, can opt for a fast-track service offered by the New York City Department of Buildings (DOB), called the Professional Certification Program. The program, introduced in 1996, enables registered architects and professional engineers to certify, through an affidavit signed by the owner, contractor, and all responsible professionals (architects, engineers, plumbers, and the like) that the plans they file with the department are in compliance with all applicable laws. This reduces the amount of time a builder normally would wait for a DOB permit by eliminating the process of DOB examination and approval of the plans. The professional certification must be submitted at the time of pre- filing and in advance. A professionally certified application goes through the same pre-filing, payment, and data entry process as normal applications: • Information on the availability of a public sewer system • If a private sewage treatment plant is proposed, evidence of submission of plans for approval of such a plant to the department of 21 days USD 3,640 2 environmental protection and the department of health as required by law • The lot diagram showing compliance with the zoning resolution • The foundation plans • The floor and roof plans showing compliance with exit requirements • The detailed architectural, structural, and mechanical drawings • General description of the proposed work After analyzing the plans (assuming that all required documents are present), the DOB approves the application at the end of data entry. A professionally certified application does not go through plan examination. The applicant can check the application status by using the Buildings Information System and, upon approval, can retrieve the application folder from the DOB to apply for a permit. Twenty percent of all professionally certified applications are selected for audit within 10 days of first permit issuance. The audits for new projects may take place within 30 days after the application is issued. The overall time of application clearance is 5 days on average. According to the 2008 Building Code No. 26-212, the fee for the new building permit is USD 0.26 per square foot. The plumbing permit and foundation fee are calculated inside the above flat rate. The Building Code says that "fifty percent of the total fee for the work permit, but not less than one hundred dollars, or the total fee for the work permit where such fee is less than one hundred dollars, shall be Doing Business 2015 United States 33 Time to No. Procedure Cost to complete complete paid by or on behalf of the owner or lessee of the building premises or property affected, and shall accompany the first application for the approval of plans or other statement describing the building work when submitted prior to submission of the permit application; and the whole or remainder of the total fee shall be paid before the work permit may be issued.” Still, most companies of BuildCo’s size would opt to pay the amount upfront, not in two separate transactions. Only for large projects is dividing the amount widespread. Starting in 2011, the NYC Department of Buildings began accepting digital plans for new buildings. While our contributors have noted that the processing time isn't any faster in practice than submitting in person, it does allow the applicant more project control and improved accessibility to the plan examiner and inter-agency communications, as well as online tracking of application progress. Agency: New York City Department of Buildings (DOB) * Submit application and receive Sewer Availability Certification Sewer certification application must be submitted by a New York State licensed Professional Engineer (PE) or Registered Architect (RA). Applicant submits 6 copies of the application form, signed and sealed by RA/PE, with signed cover letter, fees, attachments and completed checklist to DEP. DEP reviews the application to ensure it is accurate, complete and compliant with applicable DEP rules and regulations. DEP 21 days no charge 3 then issues Sewer Certification (valid for 2 years). Once the application is certified, the applicant is notified that it may be picked up from the DEP Borough Water and Sewer Office or it may be mailed upon request. Agency: Department of Environmental Protection (DEP) Master Plumber applies for and receives Sewer Connection Permit The Licensed Master Plumber must apply for a Sewer Connection Permit prior to obtaining the work permit. DEP Bureau of Water and Sewer reviews the permit application for accuracy and completion. Licensed Master Plumber brings stamped DEP permit along with permit 4 fees to to DEP Bureau of Customer Service local office. Once the permit 21 days USD 2,155 is approved, the Master Plumber can connect to water and sewage at any point during or after construction. Agency: Department of Environmental Protection (DEP) Notarize signatures of contractor and site safety manager on work permit application form, PW2 form and cost affidavit form (PW3 form) 5 1 day USD 12 The site safety manager must be an employee of BuildCo and possess a valid site safety manager certificate. The cost affidavit must be filed to certify estimated and actual costs, in order to obtain a work permit. Doing Business 2015 United States 34 Time to No. Procedure Cost to complete complete Obtain work permit from the Department of Buildings (DOB) After obtaining the Building permit, the company must request a work permit. The request should be accompanied by a copy of the current insurance policy of workers’ compensation insurance. This procedure must be done by the contractor even if they are not the owner of the land. Different types of work require separate licenses. However, in one application, more than one permit can be requested. For instance, plumbing and construction work permits can be requested in the same application. 6 1 day no charge For a warehouse, BuildCo must request a new building permit, a plumbing permit, and a foundation and earthwork permit. The request must include the detailed architectural, structural, and mechanical plans. One to two days prior to construction works, the company must notify the DOB by phone. Agency: Department of Buildings (DOB) Submit notice to Department of Buildings on commencement of foundation and earthwork The foundation and earthwork permit shall be issued on the condition that the applicant provides a written notice to the Department of 7 Buildings at least 24 hours, but no more than 48 hours prior to the 1 day no charge commencement of the foundation or earthwork. Agency: New York City Department of Buildings (DOB) * Notify all the owners of adjacent plots about the works Notification of adjacent owners, done 5 days prior to excavations for new building foundations, is necessary for obtaining the foundation 8 and earthwork permit. 1 day no charge Request and obtain work permit from the Department of Transportation A Construction Activity Permit fee costs USD 50.00, and is valid for 90 9 days unless otherwise stated. Once the 90 days expire, the company 2 days USD 50 buys another work permit for the remaining period of construction. Upon applying, the company gets an account number, and the next day obtains the work permit. Doing Business 2015 United States 35 Time to No. Procedure Cost to complete complete Unless otherwise authorized, permits shall be kept at the work site or designated field headquarters at all times and shall be made available for inspection upon request of any police officer or any authorized employee of the Departments of Environmental Protection, Buildings, Police, and Transportation, or any other city employees specifically authorized by the Commissioner to enforce these rules. Agency: Department of Transportation * Receive on-site inspection by the Department of Transportation (DOT) and obtain approval Approval from the Department of Transportation is granted after 10 inspection. 1 day USD 320 Agency: Department of Transportation Request occupancy certificate from the Department of Buildings (DOB) Upon completion of construction, the company must arrange for DOB inspections. For construction and plumbing, the company should contact the borough office where property is located. After completion of satisfactory inspections and submission of the required fillings (including inspections reports), DOB issues a new certificate of occupancy that describes the legal use and occupancy of a property. Each application must be accompanied by an accurate and complete lot survey made by a licensed surveyor. If the certificate of occupancy application is not signed by a professional engineer or registered architect, the form must be notarized by an official notary public. To obtain the certificate of occupancy, the company must obtain the 1 day no charge 11 work permit/approval from the Bureau of Electrical Control, the Department of Environmental Protection, and the Department of Transportation. If these approvals have not yet been granted at the time of applying for the certificate of occupancy, a temporary certificate can be issued. The company then has a year to obtain all the necessary approvals. If the building does not comply with all the plans and the New York City building code, the company must make the necessary changes. Then the Department of Buildings inspects the warehouse again. This process is repeated until the building complies with all the rules. It is common to have 2 -- 3 inspections of this sort. Once the building passes the inspection, the issuance of the certificate of occupancy is immediate. Agency: Department of Buildings (DOB) Doing Business 2015 United States 36 Time to No. Procedure Cost to complete complete * Receive final inspection by the Department of Buildings (DOB) The inspection takes place after all inspections (electricity, water and sewerage, and transport) have taken place. 1 day no charge 12 Agency: Department of Buildings (DOB) Obtain occupancy certificate from the Department of Buildings (DOB) 13 8 days USD 100 Agency: Department of Buildings (DOB) * Receive final inspection by the Department of Environmental Protection (DEP) and obtain approval Approval from the Department of Environmental Protection is granted 14 after inspection. 1 day no charge Agency: Department of Environmental Protection (DEP) * Receive sewer connection inspection and obtain Certificate of Inspection The licensed master plumber will notify DEP when sewer connection is ready for inspection. The trench must be open for any un-inspected length and all work on pipes, joints etc must be visible. The connection inspection must be scheduled at least 24 hours in advance. DEP will 15 issue Certificate of Inspection after all works are in compliance with the 1 day no charge sewer certification. The original Certificate of Inspection is stored with the DEP Burough Water and Sewer Office and a copy is sent to the plumber and DOB. Agency: Department of Environmental Protection (DEP) * Takes place simultaneously with another procedure. Note: Online procedures account for 0.5 days in the total time calculation. Source: Doing Business database. Summary of time, cost and procedures for dealing with construction permits in United States - Los Angeles Time to No. Procedure Cost to complete complete Doing Business 2015 United States 37 Time to No. Procedure Cost to complete complete Receive building plan check and permit Building plans are screened for completeness and accuracy. An option to expedite the plan check is available for an expedite fee of 50% of the plan check fee. Plans that are expedited are usually handled in 5 calendar days, as expedited plans can include weekend work, instead of the normal 3-4 week waiting period. Smaller projects such as tenant improvements and small offices may receive a counter plan check that takes only 45-60 minutes. Building plans must be submitted to the Department of Building and Safety, including: • Description of the work to be covered by the permit. • Description of the land on which the proposed work is to be done, and the street address. • Description of the use for which the proposed work is intended. • Two sets of site plans, including all boundaries, lot lines, existing and proposed buildings and structures, neighboring public ways, and dimensions. • Valuation of any new building. • Be signed by the permittee, or an authorized agent. • Give such other data and information as may be required by the Superintendent of Building. Building plan checks include electrical, mechanical, disabled access and structural plan checks. Grading plan checks may also be required if the location is in a hillside area. Mechanical plan checks may also be 5 days USD 48,646 1 required when there are HVAC systems or elevators required. HVAC systems may be required if the building is in the desert areas, but would not be required in the beach or basin areas. BuildCo's warehouse is also not likely to require an elevator, according to the CBC Title 42 Chapter 11B, because it is fewer than three stories, and "a reasonable portion of [the] facilities and accommodations normally sought by the public... are accessible to and usable by persons with disabilities." Costs include: - For the plan check, a total of $22,782.75 including: • Plan check fee: $9,699 (90% of the building permit fee) but if expedited this amounts to $14,548.53 (additional 50% of the plan check fee for expedited services) • Planning fee: $1,610.34 • One stop surcharge: $290.97 • System development surcharge: $872.91 • Arts development surcharge: $5,460.00 ($0.39 / sq. ft. and it is only applicable to commercial projects valued at $500,000 or more) - For the building permit, total of $25,863.45 including: • Permit fee: $10,776.69 • Fire hydrant fee: $5,526.82 • Plan maintenance fee: $215.53 • EQ instrumentation fee: $531.38 • Planning fee: $1,209.14 • One stop surcharge: $230.47 • System development surcharge: $691.42 • State green building surcharge: $102.00 Doing Business 2015 United States 38 Time to No. Procedure Cost to complete complete • School district fee: $6,580.00 (applicable to projects with a total area of 500 square feet or more) Agency: Department of Building and Safety (LADBS) * Receive plumbing plan check and permit The cost includes the following: - For the plumbing plan check, a total of $179.63 including: • Plan check fee of $110.88 (70% of the plumbing permit fee) but if expedited this amounts to $166.32 (additional 50% of the permit fee for expedited services) • One stop surcharge: $3.33 • System development surcharge: $9.98 2 - For the plumbing permit, a total of $195.91 including: 1 day USD 376 • Expedited permit includes: 1 sink/lavatory ($23.00), 1 water service connection ($64.00), one water using device (sub-pump) ($17.00), 1 public sewer connection ($40.00) • Permit issuance fee: $23 • One stop surcharge: $3.63 • System development surcharge: $10.88 Agency: Department of Building and Safety (LADBS) * Bonded plumber applies for and receives sewer connection permit. A sewer permit is required for all new connections to sewers. This is an over-the-counter permit and can be issued in as little as 30 minutes. In order to issue an S-Permit, BuildCo must identify the address of the property and work. This will be verified by the Bureau of Engineering (BOE) staff, and they will confirm the availability of the main line sewer. Furthermore, the BOE District Office where the project is located must be identified, in case the District Engineer’s input is required. 3 1 day USD 715 Only a bonded plumber can apply for this permit. The Doing Business methodology assumes that BuildCo has a registered plumber on staff. The cost includes: • $265 flat fee • 2% one-stop surcharge • 7% equipment and training surcharge • $2.84 per linear foot of sewer connection for the inspection Agency: Los Angeles Department of Sanitation Doing Business 2015 United States 39 Time to No. Procedure Cost to complete complete * File a Service Advisory Request (SAR) and receive the maximum flow requirements report A Service Advisory Request (SAR) must be filed with the Los Angeles Department of Power and Water. Information required: • Address of proposed service installation or legal description of property • Proposed service location (distance from property line or distance to centerline of nearest cross street) • Flow requirements (gallons per minute [gpm]) or size, and type of service desired (fire, domestic, irrigation) 4 A customized hydraulic analysis of existing LADWP facilities serving 10 days USD 210 your location is made. The analysis is based on your service location and your maximum flow requirements. The time required to analyze and process your SAR report generally ranges from a few days to two weeks depending on the volume of requests and the complexity of the analysis. At this time, the average turnaround time is approximately 10 days. The SAR report will be mailed and/or faxed to you at your request. A copy of the completed report is sent to the DBS so that you may obtain your fire sprinkler permit. Agency: Los Angeles Department of Water and Power Receive fire sprinkler plan check and permit The cost details include the following: - For the sprinkler plan check, a total of $620.30 including: • Plan check fee: $382.90 but if expedited this amounts to $574.35 (50% additional fee for expedited services) • One stop surcharge: $11.49 • System development surcharge: $34.46 5 - For the sprinkler permit, a total of $760.32 including: 1 day USD 1,381 • Expedited permit: 180 sprinkler heads (about 90 per floor) ($547.00) and 2 standpipe flush risers (1 per floor) ($134.00) • Permit issuance fee: $23 • One stop surcharge: $14.08 • System development surcharge: $42.24 Agency: Department of Building and Safety (LADBS) Request and receive foundation inspection This inspection occurs when the excavation for footings is complete 1 day no charge 6 and footing forms and required reinforcing steel are in place, but before any concrete is placed. Doing Business 2015 United States 40 Time to No. Procedure Cost to complete complete The request can be made online. The cost of inspection is included in the cost of the permit. Agency: Department of Building and Safety (LADBS) Request and receive inspection of wood framing This inspection occurs when all roof, walls and floor framing, fire stopping and bracing are complete and all pipes are in place, but before any of this work is covered. 7 1 day no charge The request can be made online. The cost of inspection is included in the cost of the permit. Agency: Department of Building and Safety (LADBS) Request and receive inspection of wall covering This inspection takes place when the backing and lath or drywall are in place ready for plaster, stucco or taping. 8 The request can be made online. The cost of inspection is included in 1 day no charge the cost of the permit. Agency: Department of Building and Safety (LADBS) Request and receive inspection of reinforced concrete This inspection takes place when forms and reinforcing steel are in place ready for concrete. 9 The request can be made online. The cost of inspection is included in 1 day no charge the cost of the permit. Agency: Department of Building and Safety (LADBS) Request and receive inspection of reinforced masonry This inspection takes place in grouted masonry when vertical reinforcing steel is in place and other reinforcing steel distributed and ready for placing, but before any units are laid up. 10 1 day no charge The request can be made online. The cost of inspection is included in the cost of the permit. Agency: Department of Building and Safety (LADBS) Doing Business 2015 United States 41 Time to No. Procedure Cost to complete complete Request and receive inspection of structural steel This inspection takes place when structural steel members are in place and required connections are complete, but before concealing any members or connection. 11 1 day no charge The request can be made online. The cost of inspection is included in the cost of the permit. Agency: Department of Building and Safety (LADBS) Request and receive final interior plumbing inspection The plumbing inspection must be completed before water may be turned on. This inspection would include inspection of the installed sub-meter. The request can be made online. The cost of the plumbing inspection is included in the cost of the plumbing permit. 1 day no charge 12 Note: There may also be one or two rough inspections of the installation of the plumbing during the construction, but the main control check takes place during the final inspection Agency: Department of Building and Safety (LADBS) Request and receive water connection The sub-meter purchased from the LADWP can be installed by a licensed plumber. After installation, LADWP will turn on the meter for usage. 13 42 days USD 3,584 Agency: Los Angeles Department of Water and Power * Request and receive final sewer inspection The sewer connection is made by a bonded plumber, which BuildCo is assumed to have on staff. Upon completion of the sewer connection work, the inspector will perform a final inspection. If the work is done correctly, the inspector will sign off on the permit, and a copy of the permit with the inspector's signature will be sent electronically to the Bureau of Engineering. If the work is part of a Department of Building 14 and Safety (DBS) permit and all other conditions are cleared, the 1 day no charge Department of Public Works will agree to the issuance of a Certificate of Occupancy by LADBS. The cost of the final inspection is included in the cost of the sewer permit. Agency: Bureau of Contract Administration Doing Business 2015 United States 42 Time to No. Procedure Cost to complete complete Request and receive final fire sprinkler inspection This inspection takes place to ensure full functionality of fire sprinklers after everything is completed. 15 The request can be made online. The cost of the fire inspection is 1 day no charge included in the cost of the fire sprinkler permit. Agency: Los Angeles Fire Department (LAFD) Request and receive final building inspection This inspection takes place when the construction or work is completed and the structure ready for occupancy, but before being occupied. 16 The request can be made online. The cost of inspection is included in 1 day no charge the cost of the building permit. Agency: Department of Building and Safety (LADBS) Receive certificate of occupancy After the receipt and approval of the final inspection report from each of the divisions of the Department of Building and Safety, and after the city engineer has reported that all required public improvements have been completed, the Superintendent of Building shall issue a certificate 17 of occupancy, without charge, to the owner of the building. 1 day no charge In practice this takes 1-2 days. Agency: Department of Building and Safety (LADBS) * Takes place simultaneously with another procedure. Note: Online procedures account for 0.5 days in the total time calculation. Source: Doing Business database. Doing Business 2015 United States 43 GETTING ELECTRICITY Access to reliable and affordable electricity is vital for WHAT THE GETTING ELECTRICITY businesses. To counter weak electricity supply, many firms in developing economies have to rely on self- INDICATORS MEASURE supply, often at a prohibitively high cost. Whether electricity is reliably available or not, the first step for Procedures to obtain an electricity a customer is always to gain access by obtaining a connection (number) connection. Submitting all relevant documents and What do the indicators cover? obtaining all necessary clearances and permits Doing Business records all procedures required for a Completing all required notifications and local business to obtain a permanent electricity receiving all necessary inspections connection and supply for a standardized warehouse, as well as the time and cost to complete them. These Obtaining external installation works and procedures include applications and contracts with possibly purchasing material for these works electricity utilities, clearances from other agencies Concluding any necessary supply contract and and the external and final connection works. The obtaining final supply ranking of economies on the ease of getting electricity is determined by sorting their distance to Time required to complete each procedure frontier scores for getting electricity. These scores are (calendar days) the simple average of the distance to frontier scores Is at least 1 calendar day for each of the component indicators. To make the data comparable across economies, several Each procedure starts on a separate day assumptions are used. Does not include time spent gathering The warehouse: information  Is owned by a local entrepreneur, located Reflects the time spent in practice, with little in the economy’s largest business city, in follow-up and no prior contact with officials an area where other warehouses are Cost required to complete each procedure located. For the 11 economies with a (% of income per capita) population of more than 100 million, data Official costs only, no bribes for a second city have been added. Excludes value added tax  Is not in a special economic zone where the connection would be eligible for subsidization or faster service.  Is to either the low-voltage or the medium- voltage distribution network and either  Is located in an area with no physical overhead or underground, whichever is more constraints (ie. property not near a railway). common in the area where the warehouse is  Is a new construction being connected to located. Included only negligible length in the electricity for the first time. customer’s private domain.  Is 2 stories, both above ground, with a total  Requires crossing of a 10-meter road but all surface of about 1,300.6 square meters the works are carried out in a public land, so (14,000 square feet), is built on a plot of there is no crossing into other people's 929 square meters (10,000 square feet), is private property. used for storage of refrigerated goods  Involves installing one electricity meter. The The electricity connection: monthly electricity consumption will be 26880 kilowatt hour (kWh). The internal  Is 150 meters long and is a 3-phase, 4-wire electrical wiring has been completed. Y, 140-kilovolt-ampere (kVA) (subscribed capacity) connection. Doing Business 2015 United States 44 GETTING ELECTRICITY Where does the economy stand today? What does it take to obtain a new electricity connection Most indicator sets refer to a case scenario in the largest in United States? According to data collected by Doing business city of an economy, except for 11 economies for Business, getting electricity there requires 4.8 procedures, which the data are a population-weighted average of the takes 89.6 days and costs 25.5% of income per capita 2 largest business cities. See the chapter on distance to (figure 4.1). frontier and ease of doing business ranking at the end of this profile for more details. Figure 4.1 What it takes to obtain an electricity connection in United States - New York City What it takes to obtain an electricity connection in United States - Los Angeles Doing Business 2015 United States 45 Note: Time shown in the figure above may not reflect simultaneity of procedures. For more information on the methodology of the getting electricity indicators, see the Doing Business website (http://www.doingbusiness.org). For details on the procedures reflected here, see the summary at the end of this chapter. Source: Doing Business database. Doing Business 2015 United States 46 GETTING ELECTRICITY Globally, United States stands at 61 in the ranking of 189 average ranking provide another perspective in assessing economies on the ease of getting electricity (figure 4.2). how easy it is for an entrepreneur in United States to The rankings for comparator economies and the regional connect a warehouse to electricity. Figure 4.2 How United States and comparator economies rank on the ease of getting electricity Source: Doing Business database. Doing Business 2015 United States 47 GETTING ELECTRICITY What are the details? The indicators reported here for United States are based OBTAINING AN ELECTRICITY CONNECTION on a set of specific procedures—the steps that an entrepreneur must complete to get a warehouse connected to electricity by the local distribution utility— Name of utility - Los Los Angeles Department identified by Doing Business. Data are collected from the Angeles: of Water and Power distribution utility, then completed and verified by electricity regulatory agencies and independent Name of utility - professionals such as electrical engineers, electrical New York City: Con Edison contractors and construction companies. The electricity distribution utility surveyed is the one serving the area City: New York City, Los (or areas) in which warehouses are located. If there is a Angeles choice of distribution utilities, the one serving the largest The procedures are those that apply to a warehouse and number of customers is selected. electricity connection matching the standard assumptions used by Doing Business in collecting the data (see the section in this chapter on what the indicators cover). The procedures, along with the associated time and cost, are summarized below. Table 4.2 Summary of time, cost and procedures for getting electricity in United States - New York City Time to No. Procedure Cost to complete complete Electrician files contractor work request with Con Edison (Coned) and receives service layout from them Application for service may be made by mail, fax or by using Con Edison web site at www.coned.com/es/. However, written confirmation is required. The customer or their contractor should consult Con Edison regarding the characteristics of service available before plans are completed, equipment purchased or construction started on facilities to be connected to the company's distribution system. Information the customer or their contractor furnishes Con Edison with regard to the customer's proposed electrical installation, must be in writing. The 16 calendar days USD 7,500 1 company has Electrical Contractor or Work Request Pads for your convenience. Only licensed electricians can conduct electrical connections. The licensing is done by the City of NY. The electrician hired by customer should be a licensed master electrician. The licensing is done by the City of New York. The service layout usually requires an inspection by Coned's staff who then give the technical conditions on the spot. After that the electrician can start the works. The electrician could have completed the works until the panels/ switchboard before Coned comes and inspects and then only do the wiring when they know from Coned where the service room is going to be. If the electrician however, wants to avoid to have to re-wire, they can first wait for the service layout that tells them where the service room should be. The electrician is in charge of all the works until the connection point. The Doing Business 2015 United States 48 Time to No. Procedure Cost to complete complete connection point should be on the customer's land and within a distance of 10 feet from the property line (border between public and private lands), which we assume here. The service layout usually require an inspection by Coned's staff who then give the technical conditions on the spot. After that the electrician can start the works. Now, the electrician could have completed the works until the panels/ switchboard before Coned comes and inspects and then only do the wiring when they know from Coned where the service room is going to be, etc. If they want to avoid to have to re-wire though, they can first wait for the service layout that tells them where the service room should be. The electrician is in charge of all the works until the connection point. The connection point should be on the customer's land and within a distance of 10 feet from the property line (border between public and private lands). Agency: Coned Electrician submits final checklist to Coned and security deposit (online), requests and receives external works from Coned The security deposit will not be recorded as it is refunded to the customer in 3 months time. The security deposit amount is twice the average monthly usage. Con Edison representative performs an inspection to verify that the site is ready for service construction (property-line box or sweep is installed, area graded to within 6” of final grade, curbs are installed, sewer & water lines installed, etc.). Electrician 30 calendar days USD 0 2 submits final checklist to Coned, requests and receives the works. The works consist of laying out a cable from the connection point to the closest supply source on the LV network (usually a manhole and not necessarily all the way to the distribution transformer). The works by Coned can be carried out in parallel with the electrician's works. Agency: Coned Electrician requests and receives internal wiring inspection from NY Buildings Dept. The NY Building Dept Electric division inspector does the internal and external wiring inspection once all wiring and connections are final. This step is usually carried out after electricity has been turned on, and is not a requirement to obtain supply. It is required however in order to obtain 3 an occupancy permit. If the inspector finds that everything is ok, he 7 calendar days USD 380 submits his report to the clerk in the NY Buildings office, who files it, and then publishes the Certificate of Completion online on the NY Buildings Website. This is usually done on the same day or next business day after inspection. The actual application for Certificate of Internal Inspection is done by the electrician before internal wiring commences. The Dept of Buildings then issues a Control Number to the electrician. Doing Business 2015 United States 49 Time to No. Procedure Cost to complete complete Agency: NY Dept. of Buildings Customer requests meter installation and electricity turn on from Coned The electrician contacts the utility to inform them that the certificate of completion has been obtained, gives them the Dept of Buildings Control 7 calendar days USD 0 4 Number, and requests the utility to turn electricity on. Agency: Coned * Takes place simultaneously with another procedure. Source: Doing Business database. Summary of time, cost and procedures for getting electricity in United States - Los Angeles Time to No. Procedure Cost to complete complete Submit site plan, single line diagram, load schedule and address to the office of Los Angeles Department of Water and Power and await commitment letter At the time of initial contact with the utility office, customer provides the following items: a. A completed Service Planning Information sheet b. Electrical plans including load schedules, single-line diagrams, and 1 equipment elevation drawings. 70 calendar days USD 0 c. Plot, grading, elevation, and site improvement plans. d. Any additional information requested by the service planner needed to assist the Department in finalizing the customer’s plans. Agency: Los Angeles Department of Water and Power Receive commitment letter from LADWP and request and receive external site inspection Once the utility has reviewed the project, they provide a commitment letter. After receiving the commitment letter, the customer contacts the 2 utility's Electric Service Representative to schedule a site inspection. . The 1 calendar day USD 0 utility engineer visits the warehouse to locate the site of the transformer and connection Agency: Los Angeles Department of Water and Power Doing Business 2015 United States 50 Time to No. Procedure Cost to complete complete Utility conducts external connection works The utility furnishes the customer with a commitment letter, along with estimated cost. The cost of transformer itself is borne by the utility. The customer is charged for certain administrative fees and taxes. The connection works project could be sent out for bid by the utility depending on the utility's work load. With regards to transformer installation at customer premises, the utility furnishes and installs: (a) All electrical equipment at, or in, the installation except for equipment which is provided by the customer as specified in the utility's customer requirement drawings. (b) Conductors supplying the primary side of the utility-owned transformers and secondary distribution conductors to supply points. (c) Service supply conductors from the utility-owned transformer, or 3 supply point, to the point of service. 56 calendar days USD 2,500 (5) The customer shall furnish and install all facilities specified by the utility on the Customer requirement drawings, including: (a) Cable bus structures from the terminating room or enclosure to the service terminating enclosure when required or approved for use by the customer station design engineer. The Department will furnish and supply the conductors. (b) Busway service (bus duct) from the transformer room or enclosure to the point of service when approved for use by the customer station design engineer. The bus duct will be owned and maintained by the customer at the customer's cost. Agency: Los Angeles Department of Water and Power * Customer submits the internal wiring plan to the Los Angeles Department of Building and Safety to obtain the electrical permit and receives internal wiring inspection The customer's electrical contractor applies for a electrical permit with the Los Angeles Department of Building & Safety. This permit can be applied for online. The contractor needs to specify the type of work, and 21 calendar days USD 97.2 4 pay the necessary fees online. Once the contractor has received the permit number online, he can request for an inspection (this request can be done online or by phone). The proposed date of the inspection is then informed to the contractor. Agency: Los Angeles Department of Building and Safety Doing Business 2015 United States 51 Time to No. Procedure Cost to complete complete * Customer hires private contractor to undertake civil works Customer's contractor undertakes underground wiring, excavation, conduits, construction of concrete slab. 14 calendar days USD 20,000 5 Agency: Customer's contractor Customer submits application for energizing connection online, utility installs meter and electricity starts flowing Customer's contractor applies online for "turn on" of electricity, providing details of connection and proof of electrical permit approval 6 by Los Angeles Department of Building and Safety. Contractor calls the 7 calendar days USD 0 utility for scheduling of inspection of power release. Agency: Los Angeles Department of Water and Power * Takes place simultaneously with another procedure. Source: Doing Business database. Doing Business 2015 United States 52 REGISTERING PROPERTY Ensuring formal property rights is fundamental. WHAT THE REGISTERING PROPERTY Effective administration of land is part of that. If INDICATORS MEASURE formal property transfer is too costly or complicated, formal titles might go informal again. And where property is informal or poorly Procedures to legally transfer title on administered, it has little chance of being accepted immovable property (number) as collateral for loans—limiting access to finance. Preregistration (for example, checking for liens, notarizing sales agreement, paying property What do the indicators cover? transfer taxes) Doing Business records the full sequence of Registration in the economy’s largest business procedures necessary for a business to purchase city 2 property from another business and transfer the property title to the buyer’s name. The transaction is Postregistration (for example, filing title with the municipality) considered complete when it is opposable to third parties and when the buyer can use the property, Time required to complete each procedure use it as collateral for a bank loan or resell it. The (calendar days) ranking of economies on the ease of registering Does not include time spent gathering property is determined by sorting their distance to information frontier scores for registering property. These scores are the simple average of the distance to frontier Each procedure starts on a separate day. scores for each of the component indicators. To Procedures that can be fully completed online are recorded as ½ day. make the data comparable across economies, several assumptions about the parties to the Procedure considered completed once final transaction, the property and the procedures are document is received used. No prior contact with officials The parties (buyer and seller): Cost required to complete each procedure  Are limited liability companies, 100% (% of property value) domestically and privately owned and Official costs only, no bribes perform general commercial activities. No value added or capital gains taxes included  Are located in the economy’s largest business city . 2  Is located in a periurban commercial zone, and no rezoning is required.  Have 50 employees each, all of whom are nationals.  Has no mortgages attached, has been under the same ownership for the past 10 years. The property (fully owned by the seller):  Consists of 557.4 square meters (6,000 square  Has a value of 50 times income per capita. feet) of land and a 10-year-old, 2-story The sale price equals the value. warehouse of 929 square meters (10,000  Is registered in the land registry or cada- square feet). The warehouse is in good stre, or both, and is free of title disputes. condition and complies with all safety standards, building codes and legal  Property will be transferred in its entirety. requirements. There is no heating system. 2 For the 11 economies with a population of more than 100 million, data for a second city have been added. Doing Business 2015 United States 53 REGISTERING PROPERTY Where does the economy stand today? What does it take to complete a property transfer in Most indicator sets refer to a case scenario in the largest United States? According to data collected by Doing business city of an economy, except for 11 economies for Business, registering property there requires 4.4 which the data are a population-weighted average of the procedures, takes 15.2 days and costs 2.4% of the 2 largest business cities. See the chapter on distance to property value (figure 5.1). frontier and ease of doing business ranking at the end of this profile for more details. Figure 5.1 What it takes to register property in United States - New York City What it takes to register property in United States - Los Angeles Doing Business 2015 United States 54 Note: Time shown in the figure above may not reflect simultaneity of procedures. Online procedures account for 0.5 days in the total time calculation. For more information on the methodology of the registering property indicators, see the Doing Business website (http://www.doingbusiness.org). For details on the procedures reflected here, see the summary at the end of this chapter. Source: Doing Business database. Doing Business 2015 United States 55 REGISTERING PROPERTY Globally, United States stands at 29 in the ranking of 189 regional average ranking provide other useful economies on the ease of registering property (figure information for assessing how easy it is for an 5.2). The rankings for comparator economies and the entrepreneur in United States to transfer property. Figure 5.2 How United States and comparator economies rank on the ease of registering property Source: Doing Business database. Doing Business 2015 United States 56 REGISTERING PROPERTY What are the details? The indicators reported here are based on a set of STANDARD PROPERTY TRANSFER specific procedures—the steps that a buyer and seller must complete to transfer the property to the buyer’s name—identified by Doing Business through information collected from local property lawyers, Property value: USD 2,697,696 notaries and property registries. These procedures are those that apply to a transaction matching the New York City, Los City: standard assumptions used by Doing Business in Angeles collecting the data (see the section in this chapter on The procedures, along with the associated time and what the indicators cover). cost, are summarized below. Table 5.2 Summary of time, cost and procedures for registering property in United??States Time to No. Procedure Cost to complete complete Obtain a title report The preliminary title report is to investigate any outstanding issues on the property such as easements or dues to utility companies, existing mortgages on the property, and CC&Rs (Covenants, Conditions and Included in 1 Restrictions which are rules and restrictions placed on the property by About 3 days procedure 2 the owners association, etc.) Agency: Private company Obtain Title Insurance policy (Environmental requirement and inspections) Parties sign an escrow agreement. The agreement would usually allow for a period of 30 days for due diligence checks and is subject to certain contingencies (i.e. the property meeting the contingency requirements to move forward with the sale). At the end of this period, the buyer's deposit will no longer be refundable. During this period, a variety of inspections take place. The checks may be completed before this period USD 9,961 (Title ends, but cannot exceed this period. In the due-diligence phase, the Insurance, Escrow, two following requirements have to be undertaken: - Phase I Environmental 2 2 weeks Environmental inspection. This is a visual inspection to check if there are report, Natural any hazardous materials such as oil stains or chemicals on the property Hazards Disclosure or if it is located near or formerly used as a gas station or dry cleaners for report) instance. - Natural Hazards Disclosure Statement (usually ordered online by the escrow company and provided to the Buyer; it is public data. This Report is required by law as of 1998 for all real estate transactions in California: Assembly Bill 1195 now knows as California Civil Code 1103. It mandates 3 natural hazard disclosures into one statutory form: Seismic, fire and floods, given that California is especially sensitive to seismic movements and earthquakes. More information can be found here: http://archive.calbar.ca.gov/calbar/2cbj/99aug/mclestdy.htm) Doing Business 2015 United States 57 Time to No. Procedure Cost to complete complete Agency: Private company Sign and Notarize Deed with a Notary Public 3 1 day USD 20 Agency: Notary The buyer obtains and fills the forms needed for the transfer Documentary Transfer Tax Los Angeles City charges $4.5 per 1,000 and USD 4.5 per 1,000 Los Angeles County (according to LA City Ordinance) charges $1.10 per (Los Angeles City) 1,000 (or 0.55 cents per $500, rounding up to the highest $500 according 1 day and 0.55 cents per 4 to the California Revenue and Taxation Code) $500 (Los Angeles County) Agency: Los Angeles County Treasurer and tax collector The title is recorded with the County Clerk To record the deed, the following documents must be filed: - Notarized Deed - Preliminary Change of Ownership Form (If this is not filed, a USD 20 fee is added per Revenue and Taxation Code 480.3) - Declaration of Documentary Transfer Tax These forms can be obtained from the website of the RRCC: http://www.lavote.net/recorder/Document_Recording.cfm The recording fees are: - Base Fee, $10.00 (Cal. Govt. Code § 27361(a)); - 1 day USD 23 5 First Page, $1.00 (Cal. Govt. Code §27361.4(a), (b), and (c); - Each additional page, $3.00; - Electronic recording fee, $1.00 (Cal. Govt. Code § 27397(c)(1)). - Special Real Estate Fraud Prosecution Program Fee, $4.00; - Social Security Number Truncation Program, $1.00 (AB 1168, § 627) Agency: County clerk's office * Takes place simultaneously with another procedure. Note: Online procedures account for 0.5 days in the total time calculation. Source: Doing Business database. Doing Business 2015 United States 58 GETTING CREDIT Two types of frameworks can facilitate access to WHAT THE GETTING CREDIT INDICATORS credit and improve its allocation: credit information MEASURE systems and borrowers and lenders in collateral and bankruptcy laws. Credit information systems enable Strength of legal rights index (0–12) 3 lenders’ rights to view a potential borrower’s financial history (positive or negative)—valuable information to Rights of borrowers and lenders through consider when assessing risk. And they permit collateral laws borrowers to establish a good credit history that will Protection of secured creditors’ rights through allow easier access to credit. Sound collateral laws bankruptcy laws enable businesses to use their assets, especially Depth of credit information index (0–8) 4 movable property, as security to generate capital— while strong creditors’ rights have been associated Scope and accessibility of credit information with higher ratios of private sector credit to GDP. distributed by credit bureaus and credit registries What do the indicators cover? Credit bureau coverage (% of adults) Doing Business assesses the sharing of credit information and the legal rights of borrowers and Number of individuals and firms listed in lenders with respect to secured transactions through largest credit bureau as percentage of adult 2 sets of indicators. The depth of credit information population index measures rules and practices affecting the Credit registry coverage (% of adults) coverage, scope and accessibility of credit Number of individuals and firms listed in information available through a credit registry or a credit registry as percentage of adult credit bureau. The strength of legal rights index population measures whether certain features that facilitate lending exist within the applicable collateral and bankruptcy laws. Doing Business uses two case scenarios, Case A and Case B, to determine the scope of the secured transactions system, involving a  Has up to 50 employees. secured borrower and a secured lender and  Is 100% domestically owned, as is the lender. examining legal restrictions on the use of movable collateral (for more details on each case, see the Data The ranking of economies on the ease of getting Notes section of the Doing Business 2015 report). credit is determined by sorting their distance to These scenarios assume that the borrower: frontier scores for getting credit. These scores are the distance to frontier score for the strength of legal  Is a private limited liability company. rights index and the depth of credit information  Has its headquarters and only base of index. operations in the largest business city. For the 11 economies with a population of more than 100 million, data for a second city have been added. 3 For the legal rights index, 2 new points are added in Doing Business 2015 for new data collected to assess the overall legal framework for secured transactions and the functioning of the collateral registry. 4 For the credit information index, 2 new points are added in Doing Business 2015 for new data collected on accessing borrowers’ credit information online and availability of credit scores. Doing Business 2015 United States 59 GETTING CREDIT Where does the economy stand today? How well do the credit information system and collateral Globally, United States stands at 2 in the ranking of 189 and bankruptcy laws in United States facilitate access to economies on the ease of getting credit (figure 6.1). The credit? The economy has a score of 8 on the depth of rankings for comparator economies and the regional credit information index and a score of 11 on the average ranking provide other useful information for strength of legal rights index (see the summary of assessing how well regulations and institutions in United scoring at the end of this chapter for details). Higher States support lending and borrowing. scores indicate more credit information and stronger legal rights for borrowers and lenders. Figure 6.1 How United States and comparator economies rank on the ease of getting credit Source: Doing Business database. Doing Business 2015 United States 60 GETTING CREDIT One way to put an economy’s score on the getting credit rights index for United States and shows the scores for indicators into context is to see where the economy comparator economies as well as the regional average stands in the distribution of scores across economies. score. Figure 6.3 shows the same for the depth of credit Figure 6.2 highlights the score on the strength of legal information index. Figure 6.2 How strong are legal rights for borrowers Figure 6.3 How much credit information is shared— and lenders? and how widely? Economy scores on strength of legal rights index Economy scores on depth of credit information index Note: Higher scores indicate that collateral and bankruptcy Note: Higher scores indicate the availability of more credit laws are better designed to facilitate access to credit. information, from either a credit registry or a credit bureau, Source: Doing Business database. to facilitate lending decisions. If the credit bureau or registry is not operational or covers less than 5% of the adult population, the total score on the depth of credit information index is 0. Source: Doing Business database. Doing Business 2015 United States 61 GETTING CREDIT What are the details? The getting credit indicators reported here for United The data on the legal rights of borrowers and lenders are States are based on detailed information collected in gathered through a survey of financial lawyers and that economy. The data on credit information sharing are verified through analysis of laws and regulations as well collected through a survey of a credit registry and/or as public sources of information on collateral and credit bureau (if one exists). To construct the depth of bankruptcy laws. For the strength of legal rights index, a credit information index, a score of 1 is assigned for each score of 1 is assigned for each of 10 aspects related to of 8 features of the credit registry or credit bureau (see legal rights in collateral law and 2 aspects in bankruptcy summary of scoring below). law. New York City Los Angeles Strength of legal rights index (0–12) Index score: 11 Index score: 11 Does an integrated or unified legal framework for secured transactions that extends to the creation, publicity and enforcement of functional Yes Yes equivalents to security interests in movable assets exist in the economy? Does the law allow businesses to grant a non possessory security right in a single category of movable assets, without requiring a specific description Yes Yes of collateral? Does the law allow businesses to grant a non possessory security right in substantially all of its assets, without requiring a specific description of Yes Yes collateral? May a security right extend to future or after-acquired assets, and may it extend automatically to the products, proceeds or replacements of the Yes Yes original assets? Is a general description of debts and obligations permitted in collateral agreements; can all types of debts and obligations be secured between Yes Yes parties; and can the collateral agreement include a maximum amount for which the assets are encumbered? Is a collateral registry in operation for both incorporated and non- incorporated entities, that is unified geographically and by asset type, with No No an electronic database indexed by debtor's name? Does a notice-based collateral registry exist in which all functional Yes Yes equivalents can be registered? Does a modern collateral registry exist in which registrations, amendments, cancellations and searches can be performed online by any Yes Yes interested third party? Are secured creditors paid first (i.e. before tax claims and employee Yes Yes claims) when a debtor defaults outside an insolvency procedure? Doing Business 2015 United States 62 New York City Los Angeles Strength of legal rights index (0–12) Index score: 11 Index score: 11 Are secured creditors paid first (i.e. before tax claims and employee Yes Yes claims) when a business is liquidated? Are secured creditors subject to an automatic stay on enforcement when a debtor enters a court-supervised reorganization procedure? Does the law Yes Yes protect secured creditors’ rights by providing clear grounds for relief from the stay and/or sets a time limit for it? Does the law allow parties to agree on out of court enforcement at the time a security interest is created? Does the law allow the secured creditor Yes Yes to sell the collateral through public auction and private tender, as well as, for the secured creditor to keep the asset in satisfaction of the debt? Depth of credit information index (0–8) Credit bureau Credit registry Index score: 8 Are data on both firms and individuals distributed? Yes No 1 Are both positive and negative credit data distributed? Yes No 1 Are data from retailers or utility companies - in addition to data from banks and financial institutions - Yes No 1 distributed? Are at least 2 years of historical data distributed? (Credit bureaus and registries that distribute more than 10 years of negative data or erase data on Yes No 1 defaults as soon as they are repaid obtain a score of 0 for this component.) Are data on loan amounts below 1% of income per Yes No 1 capita distributed? By law, do borrowers have the right to access their Yes No 1 data in the credit bureau or credit registry? Can banks and financial institutions access borrowers’ credit information online (for example, through an Yes No 1 online platform, a system-to-system connection or both)? Are bureau or registry credit scores offered as a value- added service to help banks and financial institutions Yes No 1 assess the creditworthiness of borrowers? Note: Prior to Doing Business 2015, the depth of credit information index covered only the first 6 features listed above. An economy receives a score of 1 if there is a "yes" to either bureau or registry. If the credit bureau or registry is not operational or covers less than 5% of the adult population, the total score on the depth of credit information index is 0. Doing Business 2015 United States 63 Credit bureau Credit registry Coverage (% of adults) (% of adults) Number of firms 25,057,846 0 Number of individuals 220,000,000 0 Percent of total 100.0 0.0 Source: Doing Business database. Doing Business 2015 United States 64 PROTECTING MINORITY INVESTORS Protecting minority investors matters for the ability of companies to raise the capital they need to grow, WHAT THE PROTECTING MINORITY innovate, diversify and compete. Effective regulations INVESTORS INDICATORS MEASURE define related-party transactions precisely, promote clear and efficient disclosure requirements, require shareholder participation in major decisions of the Extent of disclosure index (0–10) company and set detailed standards of accountability Review and approval requirements for related-party for company insiders. transactions ; Disclosure requirements for related-party transactions What do the indicators cover? Doing Business measures the protection of minority Extent of director liability index (0–10) investors from conflicts of interest through one set of Ability of minority shareholders to sue and hold interested indicators and shareholders’ rights in corporate directors liable for prejudicial related-party transactions; governance through another. The ranking of economies Available legal remedies (damages, disgorgement of on the strength of minority investor protections is profits, fines, imprisonment, rescission of the transaction) determined by sorting their distance to frontier scores Ease of shareholder suits index (0–10) for protecting minority investors. These scores are the Access to internal corporate documents; Evidence simple average of the distance to frontier scores for the obtainable during trial and allocation of legal expenses extent of conflict of interest regulation index and the extent of shareholder governance index. To make the Extent of conflict of interest regulation index data comparable across economies, a case study uses (0–10) several assumptions about the business and the Sum of the extent of disclosure, extent of director liability transaction. and ease of shareholder indices, divided by 3 The business (Buyer): Extent of shareholder rights index (0-10.5)  Is a publicly traded corporation listed on the Shareholders’ rights and role in major corporate decisions economy’s most important stock exchange (or at least a large private company with Strength of governance structure index (0- multiple shareholders). 10.5) Governance safeguards protecting shareholders from  Has a board of directors and a chief executive undue board control and entrenchment officer (CEO) who may legally act on behalf of Buyer where permitted, even if this is not Extent of corporate transparency index (0-9) specifically required by law. Corporate transparency on ownership stakes, The transaction involves the following details: compensation, audits and financial prospects  Mr. James, a director and the majority Extent of shareholder governance index shareholder of the company, proposes that (0–10) the company purchase used trucks from Sum of the extent of shareholders rights, strength of another company he owns. governance structure and extent of corporate transparency indices, divided by 3  The price is higher than the going price for used trucks, but the transaction goes forward. Strength of investor protection index (0–10)  All required approvals are obtained, and all Simple average of the extent of conflict of interest required disclosures made, though the regulation and extent of shareholder governance indices transaction is prejudicial to Buyer.  Shareholders sue the interested parties and the members of the board of directors. Doing Business 2015 United States 65 PROTECTING MINORITY INVESTORS Where does the economy stand today? How strong are minority investor protections against protection index (figure 7.1). While the indicator does self-dealing in United States? The economy has a score not measure all aspects related to the protection of of 6.6 on the strength of minority investor protection minority investors, a higher ranking does indicate that an index, with a higher score indicating stronger economy’s regulations offer stronger minority investor protections. protections against self-dealing in the areas measured. Globally, United States stands at 25 in the ranking of 189 economies on the strength of minority investor Figure 7.1 How United States and comparator economies perform on the strength of minority investor protection index Source: Doing Business database. Doing Business 2015 United States 66 PROTECTING MINORITY INVESTORS One way to put an economy’s scores on the protecting indices for United States in 2014. A summary of scoring minority investors indicators into context is to see where for the protecting minority investors indicators at the the economy stands in the distribution of scores across end of this chapter provides details on how the indices comparator economies. Figures 7.2 through 7.7 highlight were calculated. the scores on the various minority investor protection Figure 7.2 How extensive are disclosure Figure 7.3 How extensive is the liability regime for directors? requirements? Extent of director liability index (0-10) Extent of disclosure index (0-10) Note: Higher scores indicate greater liability of directors. Note: Higher scores indicate greater disclosure. Source: Doing Business database. Source: Doing Business database. Doing Business 2015 United States 67 PROTECTING MINORITY INVESTORS Figure 7.4 How easy is accessing internal corporate documents? Ease of shareholder suits index (0-10) Note: Higher scores indicate greater minority shareholder access to evidence before and during trial. Source: Doing Business database. Doing Business 2015 United States 68 PROTECTING MINORITY INVESTORS Figure 7.5 How extensive are shareholder rights? Extent of shareholder rights index (0-10.5) Note: The higher the score, the stronger the protections. Source: Doing Business database. Figure 7.6 How strong is the governance structure? Strength of governance structure index (0-10.5) Note: Higher scores indicate more stringent governance structure requirements. Source: Doing Business database. Doing Business 2015 United States 69 Figure 7.7 How extensive is corporate transparency? Extent of corporate transparency index (0-9) Note: Higher scores indicate greater transparency. Source: Doing Business database. Doing Business 2015 United States 70 PROTECTING MINORITY INVESTORS What are the details? The protecting minority investors indicators reported to disclosure, director liability, shareholder suits, here for United States are based on detailed information shareholder rights, governance structure and corporate collected through a survey of corporate and securities transparency in a standard case study (for more details, lawyers about securities regulations, company laws and see the Data Notes section of the Doing Business 2015 court rules of evidence and procedure. To construct the report). The summary below shows the details underlying six indicators on minority investor protection, scores are the scores for United States. assigned to each based on a range of conditions relating Table 7.2 Summary of scoring for the protecting minority investors indicators in United States Answer (New Score (New Answer (Los Score (Los York City) York City) Angeles) Angeles) Extent of disclosure index (0-10) 7.0 8.0 Shareholders or Board of board of directors Which corporate body can provide legally sufficient approval directors 1 excluding 2 for the Buyer-Seller transaction? (0-3) including interested interested parties members Full disclosure Is disclosure by the interested director to the board of Full disclosure of 2 of all material 2 directors required? (0-2) all material facts facts Disclosure on Disclosure on the the transaction Is disclosure of the transaction in published periodic filings transaction and 2 and on the 2 (annual reports) required? (0-2) on the conflict of conflict of interest interest Disclosure on Disclosure on the the transaction Is immediate disclosure of the transaction to the public transaction and 2 and on the 2 and/or shareholders required? (0-2) on the conflict of conflict of interest interest Must an external body review the terms of the transaction No 0 No 0 before it takes place? (0-1) Extent of director liability index (0-10) 9.0 8.0 Can shareholders sue directly or derivatively for the damage Yes 1 Yes 1 caused by the Buyer-Seller transaction to the company? (0-1) Can shareholders hold the interested director liable for the Liable if unfair or Liable if 2 1 damage caused by the transaction to the company? (0-2) prejudicial negligent Can shareholders hold members of the approving body Liable if unfair or Liable if unfair liable for the damage cause by the transaction to the 2 2 prejudicial or prejudicial company? (0-2) Must the interested director pay damages for the harm caused to the company upon a successful claim by a Yes 1 Yes 1 shareholder plaintiff? (0-1) Must the interested director repay profits made from the Yes 1 Yes 1 transaction upon a successful claim by a shareholder Doing Business 2015 United States 71 plaintiff? (0-1) Can both fines and imprisonment be applied against the No 0 No 0 interested indrector? (0-1) Voidable if Can a court void the transaction upon a successful claim by a Voidable if unfair 2 unfair or 2 shareholder plaintiff? (0-2) or prejducial prejducial Ease of shareholder suits index (0-10) 9.0 9.0 Before filing suit, can shareholders owning 10% of the company’s share capital inspect the transaction documents? Yes 1 Yes 1 (0-1) Can the plaintiff obtain any documents from the defendant Any relevant No 3 3 and witnesses during trial? (0-3) document Can the plaintiff request categories of documents from the Yes 1 Yes 1 defendant without identifying specific ones? (0-1) Can the plaintiff directly question the defendant and Yes 2 Yes 2 witnesses during trial? (0-2) Is the level of proof required for civil suits lower than that of Yes 1 Yes 1 criminal cases? (0-1) Can shareholder plaintiffs recover their legal expenses from Yes if Yes if successful 1 1 the company? (0-2) successful Strength of minority investor protection index (0-10) 6.6 6.6 Extent of conflict of interest regulation index (0-10) 8.3 8.3 Extent of shareholder rights index (0-10.5) 4.5 6.0 Can shareholders amend company bylaws or statutes with a Yes 1.5 Yes 1.5 simple majority? Can shareholders owning 10% of the company's share No 0 Yes 1.5 capital call for an extraordinary meeting of shareholders? Can shareholders remove members of the board of directors Yes 1.5 Yes 1.5 before the end of their term. Must a company obtain its shareholders’ approval every time No 0 No 0 it issues new shares? Are shareholders automatically granted subscription rights No 0 No 0 on new shares? Must shareholders approve the election and dismissal of the No 0 No 0 external auditor? Can shareholders freely trade shares prior to a major Yes 1.5 Yes 1.5 corporate action or meeting of shareholders? Strength of governance structure index (0-10.5) 3.5 2.0 Is the CEO barred from also serving as chair of the board of Yes 1.5 Yes 1.5 directors? Must the board of directors include independent board Yes for listed Yes for listed 1 1 members? companies companies Yes for listed Yes for listed Must a company have a separate audit committee? 1 1 companies companies Must changes to the voting rights of a series or class of shares be approved only by the holders of the affected Yes 1.5 No 0 shares? Must a potential acquirer make a tender offer to all No 0 No 0 shareholders upon acquiring 50% of a company? Is cross-shareholding between 2 independent companies No 0 No 0 limited to 10% of outstanding shares? Is a subsidiary barred from acquiring shares issued by its Yes 1.5 Yes 1.5 Doing Business 2015 United States 72 parent company? Extent of corporate transparency index (0-9) 6.5 6.5 Yes for listed Yes for listed Must ownership stakes representing 10% be disclosed? 1 1 companies companies Must information about board members’ other directorships Yes for listed Yes for listed as well as basic information on their primary employment be 1 1 companies companies disclosed? Yes for listed Yes for listed Must the compensation of individual managers be disclosed? 1 1 companies companies Must financial statements contain explanatory notes on Yes for listed Yes for listed significant accounting policies, trends, risks, uncertainties 1 1 companies companies and other factors influencing the reporting? Must annual financial statements be audited by an external Yes 1.5 Yes 1.5 auditor? Yes for listed Yes for listed Must audit reports be disclosed to the public? 1 1 companies companies Extent of shareholder governance index (0-10) 4.8 4.8 Source: Doing Business database. Doing Business 2015 United States PAYING TAXES Taxes are essential. The level of tax rates needs to be carefully chosen—and needless complexity in tax WHAT THE PAYING TAXES INDICATORS rules avoided. Firms in economies that rank better MEASURE on the ease of paying taxes in the Doing Business study tend to perceive both tax rates and tax Tax payments for a manufacturing company administration as less of an obstacle to business in 2013 (number per year adjusted for according to the World Bank Enterprise Survey electronic and joint filing and payment) research. Total number of taxes and contributions paid, What do the indicators cover? including consumption taxes (value added tax, sales tax or goods and service tax) Using a case scenario, Doing Business measures the taxes and mandatory contributions that a medium- Method and frequency of filing and payment size company must pay in a given year as well as the Time required to comply with 3 major taxes administrative burden of paying taxes and (hours per year) contributions. This case scenario uses a set of financial statements and assumptions about Collecting information and computing the tax payable transactions made over the year. Information is also compiled on the frequency of filing and payments as Completing tax return forms, filing with well as time taken to comply with tax laws. The proper agencies ranking of economies on the ease of paying taxes is Arranging payment or withholding determined by sorting their distance to frontier scores on the ease of paying taxes. These scores are Preparing separate tax accounting books, if required the simple average of the distance to frontier scores for each of the component indicators, with a Total tax rate (% of profit before all taxes) threshold and a nonlinear transformation applied to Profit or corporate income tax one of the component indicators, the total tax rate . 5 The financial statement variables have been updated Social contributions and labor taxes paid by to be proportional to 2012 income per capita; the employer previously they were proportional to 2005 income Property and property transfer taxes per capita. To make the data comparable across Dividend, capital gains and financial economies, several assumptions are used. transactions taxes  TaxpayerCo is a medium-size business that Waste collection, vehicle, road and other taxes started operations on January 1, 2012.  Taxes and mandatory contributions include  The business starts from the same financial corporate income tax, turnover tax and all position in each economy. All the taxes labor taxes and contributions paid by the and mandatory contributions paid during company. the second year of operation are recorded.  A range of standard deductions and  Taxes and mandatory contributions are exemptions are also recorded. measured at all levels of government. 5 The nonlinear distance to frontier for the total tax rate is equal to the distance to frontier for the total tax rate to the power of 0.8. The threshold is defined as the total tax rate at the 15th percentile of the overall distribution for all years included in the analysis. It is calculated and adjusted on a yearly basis. The threshold is not based on any economic theory of an “optimal tax rate” that minimizes distortions or maximizes efficiency in the tax system of an economy overall. Instead, it is mainly empirical in nature, set at the lower end of the distribution of tax rates levied on medium-size enterprises in the manufacturing sector as observed through the paying taxes indicators. This reduces the bias in the indicators toward economies that do not need to levy significant taxes on companies like the Doing Business standardized case study company because they raise public revenue in other ways—for example, through taxes on foreign companies, through taxes on sectors other than manufacturing or from natural resources (all of which are outside the scope of the methodology). This year’s threshold is 26.1%. Doing Business 2015 United States 74 PAYING TAXES Where does the economy stand today? What is the administrative burden of complying with 2 largest business cities. See the chapter on distance to taxes in United States—and how much do firms pay in frontier and ease of doing business ranking at the end of taxes? On average, firms make 10.6 tax payments a year, this profile for more details. spend 175.0 hours a year filing, preparing and paying Globally, United States stands at 47 in the ranking of 189 taxes and pay total taxes amounting to 43.8% of profit economies on the ease of paying taxes (figure 8.1). The (see the summary at the end of this chapter for details). rankings for comparator economies and the regional Most indicator sets refer to a case scenario in the largest average ranking provide other useful information for business city of an economy, except for 11 economies for assessing the tax compliance burden for businesses in which the data are a population-weighted average of the United States. Figure 8.1 How United States and comparator economies rank on the ease of paying taxes Source: Doing Business database. Doing Business 2015 United States 75 PAYING TAXES Economies around the world have made paying taxes concrete results. Some economies simplifying tax faster and easier for businesses—such as by payment and reducing rates have seen tax revenue rise. consolidating filings, reducing the frequency of What tax reforms has Doing Business recorded in United payments or offering electronic filing and payment. States (table 8.1)? Many have lowered tax rates. Changes have brought Table 8.1 How has United States made paying taxes easier—or not? By Doing Business report year from DB2010 to DB2015 DB year Reform In the United States the introduction of a new tax on payroll DB2011 increased taxes on companies operating within the New York City metropolitan commuter transportation district. Note: For information on reforms in earlier years (back to DB2006), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Source: Doing Business database. Doing Business 2015 United States 76 PAYING TAXES What are the details? The indicators reported here for United States are LOCATION OF STANDARDIZED COMPANY based on the taxes and contributions that would be paid by a standardized case study company used by Doing Business in collecting the data (see the section City: New York City, Los Angeles in this chapter on what the indicators cover). Tax practitioners are asked to review a set of financial statements as well as a standardized list of assumptions and transactions that the company The taxes and contributions paid are listed in the completed during its 2nd year of operation. summary below, along with the associated number of Respondents are asked how much taxes and payments, time and tax rate. mandatory contributions the business must pay and how these taxes are filed and paid. Table 8.2 Summary of tax rates and administration Total tax Notes on New York City: Tax or Payments Notes on Time Statutory Tax base rate (% of total tax mandatory contribution (number) payments (hours) tax rate profit) rate 34% taxable Federal corporate income tax 1 87 (progressiv 17.9 income e schedule) gross Employer paid - Federal old- salaries age, survivors and disability 1 online filing 55 6.2% 7 with insurance tax (OASDI) ceiling 10.288% NY City and State property 45% of 1 0 per $100 6.9 tax FMV valuation taxable NYS corporation tax 0 paid jointly 0 7.1% 5.5 income taxable NYC corporation tax 1 online filing 0 8.85% 4 income Employer paid - Hospital gross 0 paid jointly 0 1.45% 1.6 insurance contributions salaries NYC real estate transfer tax 1 0 2.63% sale price 1.6 Doing Business 2015 United States 77 Total tax Notes on New York City: Tax or Payments Notes on Time Statutory Tax base rate (% of total tax mandatory contribution (number) payments (hours) tax rate profit) rate gross Employer paid - NYS salaries 1 online filing 0 4.1% 0.7 unemployment tax with ceiling Employer paid - Metropolitan gross commuter transportation 1 online filing 0 0.34% 0.4 salaries mobility tax (MCTMT) 0.6% (6% gross Employer paid - Federal FUTA - salaries 1 online filing 0 0.1 unemployment tax (FUTA) 5.4% tax with credit) ceiling NY City and State sales and leasing 1 0 8.875% 0.1 use tax of lease truck expenses 18.4 cents fuel small Fuel tax 1 0 + 8 cents consumpti 0 amount per gallon on Sales tax 1 online filing 33 8.875% sales 0 withheld gross Employee paid - Federal old- salaries age, survivors and disability 0 paid jointly 0 6.2% 0 withheld with insurance tax (OASDI) ceiling Employee paid - Hospital gross 0 paid jointly 0 1.45% 0 withheld insurance contributions salaries Totals 11.0 175.0 45.8 Total tax Notes on Los Angeles: Tax or Payments Notes on Time Statutory Tax base rate (% of total tax mandatory contribution (number) payments (hours) tax rate profit) rate 34% taxable Federal corporate income tax 1 87 (progressiv 20.3 income e schedule) gross Federal Old-age, survivors salaries and disability insurance tax 1 online filing 55 6.2% 7 with (OASDI) ceiling taxable CA State corporation tax 1 online filing 0 8.84% 6.7 income Doing Business 2015 United States 78 Total tax Notes on Los Angeles: Tax or Payments Notes on Time Statutory Tax base rate (% of total tax mandatory contribution (number) payments (hours) tax rate profit) rate Los Angeles City Business Tax gross 1 online filing 0 0.127% 2.2 ("LACBT") receipts MV of land LA & State Property Taxes 1 online filing 0 1.198% and 1.8 buildings Employer paid - Hospital gross 0 paid jointly 0 1.45% 1.6 insurance contributions salaries 4.5% (3.4% gross UI + 0.1% salaries CA State unemployment tax 1 online filing 0 0.8 ETT + 1% with SDI ) ceiling $2.80 per $500 of LA Real Estate Transfer Tax 1 0 sale price 0.3 considerati on 0.6% (6% gross Federal unemployment tax FUTA - salaries 1 online filing 0 0.1 (FUTA) 5.4% tax with credit) ceiling 18.4 cents fuel small Fuel tax 1 0 + 8 cents consumpti 0 amount per gallon on Sales tax 1 online filing 33 9% sales 0 withheld gross Employee paid - Federal old- salaries age, survivors and disability 0 paid jointly 0 6.2% 0 withheld with insurance tax (OASDI) ceiling Employee paid - Hospital gross 0 paid jointly 0 1.45% 0 withheld insurance contributions salaries CA State & City Sales and Use leasing 0 paid jointly 0 8.875% 0 Tax on lease of new truck expenses Totals 10.0 175.0 40.9 Source: Doing Business database. Doing Business 2015 United States 79 TRADING ACROSS BORDERS In today’s globalized world, making trade between WHAT THE TRADING ACROSS BORDERS economies easier is increasingly important for INDICATORS MEASURE business. Excessive document requirements, burdensome customs procedures, inefficient port operations and inadequate infrastructure all lead to Documents required to export and import extra costs and delays for exporters and importers, (number) stifling trade potential. Research shows that Bank documents exporters in developing countries gain more from a Customs clearance documents 10% drop in their trading costs than from a similar reduction in the tariffs applied to their products in Port and terminal handling documents global markets. Transport documents What do the indicators cover? Time required to export and import (days) Doing Business measures the time and cost Obtaining, filling out and submitting all the (excluding tariffs and the time and cost for sea documents transport) associated with exporting and importing a Inland transport and handling standard shipment of goods by sea transport, and the number of documents necessary to complete the Customs clearance and inspections transaction. The indicators cover predefined stages Port and terminal handling such as documentation requirements and procedures Does not include sea transport time at customs and other regulatory agencies as well as at the port. They also cover trade logistics, including Cost required to export and import (US$ per the time and cost of inland transport to the largest container) business city. The ranking of economies on the ease All documentation of trading across borders is determined by sorting their distance to frontier scores for trading across Inland transport and handling borders. These scores are the simple average of the Customs clearance and inspections distance to frontier scores for each of the component Port and terminal handling indicators. To make the data comparable across economies, Doing Business uses several assumptions Official costs only, no bribes about the business and the traded goods. The business:  Is located in the economy’s largest The traded product: business city. For the 11 economies with a population of more than 100 million, data  Is not hazardous nor includes military items. for a second city have been added.  Does not require refrigeration or any other  Is a private, limited liability company, special environment. domestically owned and does not operate  Do not require any special phytosanitary or with special export or import privileges. environmental safety standards other than  Conducts export and import activities, but accepted international standards. does not have any special accreditation  Is one of the economy’s leading export or such as an authorized economic operator import products. status.  Is transported in a dry-cargo, 20-foot full container load. Doing Business 2015 United States 80 TRADING ACROSS BORDERS Where does the economy stand today? What does it take to export or import in United States? average of the 2 largest business cities. See the chapter According to data collected by Doing Business, exporting on distance to frontier and ease of doing business a standard container of goods requires 3 documents, ranking at the end of this profile for more details. takes 6.0 days and costs $1224.0. Importing the same Globally, United States stands at 16 in the ranking of 189 container of goods requires 5 documents, takes 5.4 days economies on the ease of trading across borders (figure and costs $1289.0 (see the summary of four predefined 9.1). The rankings for comparator economies and the stages and documents at the end of this chapter for regional average ranking provide other useful details). Most indicator sets refer to a case scenario in information for assessing how easy it is for a business in the largest business city of an economy, except for 11 United States to export and import goods. economies for which the data are a population-weighted Figure 9.1 How United States and comparator economies rank on the ease of trading across borders Source: Doing Business database. Doing Business 2015 United States 81 TRADING ACROSS BORDERS What are the details? The indicators reported here for United States are LOCATION OF STANDARDIZED COMPANY based on a set of specific predefined stages for trading a standard shipment of goods by ocean transport (see the section in this chapter on what the Port Name - Los Angeles: Los Angeles indicators cover). Information on the required documents and the time and cost to complete export Port Name - New York City: New York and import is collected from local freight forwarders, shipping lines, customs brokers, port officials and City: New York City, Los Angeles banks. The predefined stages, and the associated time and cost, for exporting and importing a standard shipment of goods are listed in the summary below, along with the required documents. New York City Los Angeles Stages to export Time (days) Cost (US$) Time (days) Cost (US$) Customs clearance and inspections 1 60 1 100 Documents preparation 2 230 2 230 Inland transportation and handling 1 500 1 465 Ports and terminal handling 2 400 2 480 Totals 6 1,190 6 1,275 New York City Los Angeles Stages to import Time (days) Cost (US$) Time (days) Cost (US$) Customs clearance and inspections 1 90 1 100 Documents preparation 2 205 2 205 Inland transportation and handling 1 600 1 465 Ports and terminal handling 1 420 2 480 Totals 5 1,315 6 1,250 Doing Business 2015 United States 82 Documents to export Bill of Lading Commercial invoice Customs export declaration Documents to import Bill of Lading Commercial invoice Customs import declaration Delivery Order Packing list Source: Doing Business database. Doing Business 2015 United States 83 ENFORCING CONTRACTS Effective commercial dispute resolution has many WHAT THE ENFORCING CONTRACTS benefits. Courts are essential for entrepreneurs INDICATORS MEASURE because they interpret the rules of the market and protect economic rights. Efficient and transparent courts encourage new business relationships because Procedures to enforce a contract through businesses know they can rely on the courts if a new the courts (number) customer fails to pay. Speedy trials are essential for Steps to file and serve the case small enterprises, which may lack the resources to Steps for trial and judgment stay in business while awaiting the outcome of a long court dispute. Steps to enforce the judgment What do the indicators cover? Time required to complete procedures (calendar days) Doing Business measures the efficiency of the judicial system in resolving a commercial dispute before Time to file and serve the case local courts. Following the step-by-step evolution of Time for trial and obtaining judgment a standardized case study, it collects data relating to Time to enforce the judgment the time, cost and procedural complexity of resolving a commercial lawsuit. The ranking on the ease of Cost required to complete procedures (% of enforcing contracts is the simple average of the claim) percentile rankings on its component indicators: Average attorney fees procedures, time and cost. Court costs The dispute in the case study involves the breach of a sales contract between 2 domestic businesses. The Enforcement costs case study assumes that the court hears an expert on the quality of the goods in dispute. This distinguishes the case from simple debt enforcement. To make the data comparable across economies, Doing Business uses several assumptions about the case:  The seller and buyer are located in the economy’s largest business city. For the 11 economies with a population of more than  The seller requests a pretrial attachment to 100 million, data for a second city have secure the claim. been added.  The dispute on the quality of the goods  The buyer orders custom-made goods, requires an expert opinion. then fails to pay.  The judge decides in favor of the seller; there  The seller sues the buyer before a is no appeal. competent court.  The seller enforces the judgment through a  The value of the claim is 200% of the public sale of the buyer’s movable assets. income per capita or the equivalent in local currency of USD 5,000, whichever is greater. Doing Business 2015 United States 84 ENFORCING CONTRACTS Where does the economy stand today? How efficient is the process of resolving a commercial 2 largest business cities. See the chapter on distance to dispute through the courts in United States? According frontier and ease of doing business ranking at the end of to data collected by Doing Business, contract this profile for more details. enforcement takes 420.0 days, costs 30.5% of the value Globally, United States stands at 41 in the ranking of 189 of the claim and requires 33.6 procedures (see the economies on the ease of enforcing contracts (figure summary at the end of this chapter for details). Most 10.1). The rankings for comparator economies and the indicator sets refer to a case scenario in the largest regional average ranking provide other useful business city of an economy, except for 11 economies for benchmarks for assessing the efficiency of contract which the data are a population-weighted average of the enforcement in United States. Figure 10.1 How United States and comparator economies rank on the ease of enforcing contracts Source: Doing Business database. Doing Business 2015 United States 85 ENFORCING CONTRACTS What are the details? The indicators reported here for United States are COURT NAME based on a set of specific procedural steps required to resolve a standardized commercial dispute through the courts (see the section in this chapter on Claim value - Los what the indicators cover). These procedures, and USD 101,215 Angeles: the time and cost of completing them, are identified through study of the codes of civil procedure and Claim value - New other court regulations, as well as through USD 101,215 York City: questionnaires completed by local litigation lawyers (and, in a quarter of the economies covered by Superior Court of Doing Business, by judges as well). Court name - Los California, County of Los Angeles: Angeles Supreme Court of the Court name - New State of New York, Civil York City: Branch New York City, Los City: Angeles Table 10.2 Summary of time, cost and procedures for enforcing a contract in United States OECD high Indicator New York City Los Angeles income average Time (days) 370 495 540 Filing and service 30 30 Trial and judgment 240 365 Enforcement of judgment 100 100 Cost (% of claim) 22.9 42 21.4 Attorney cost (% of claim) 14.4 30 Court cost (% of claim) 5 5 Enforcement Cost (% of claim) 3.5 7 Procedures (number) 32 36 32 Number of procedures (without bonus points) 34 34 Electronic filing of court cases -1 -1 Doing Business 2015 United States 86 OECD high Indicator New York City Los Angeles income average Specialized commercial courts -1 -1 Total number of procedures (including bonus points) 32 32 Doing Business 2015 United States 87 No. New York City Procedures Filing and service: Plaintiff requests payment: Plaintiff or his lawyer asks Defendant orally or in writing to comply with the 1 contract. 2 Plaintiff hires a lawyer: Plaintiff hires a lawyer. Plaintiff files a summons and complaint: Plaintiff files a summons and complaint with the court (orally or * in writing). Plaintiff pays court fees: Plaintiff pays court fees (e.g. court duties, stamp duties, or any other type of court * fees). Answer ‘yes’ even if Plaintiff recovers these costs. Registration of court case: Registration of court case by the court administration (this can include 3 assigning a reference number to the case). Assignment of court case to a judge: Assignment of court case to a judge (through a random procedure, * automated system, ruling of an administrative judge, court officer, etc). Judicial scrutiny of summons and complaint: Judge examines Plaintiff's summons and complaint for 4 formal requirements as a matter of law or standard practice. Delivery of summons and complaint to person authorized to perform service of process on Defendant: 5 The judge or a court officer delivers the summons to a summoning office, officer, or authorized person (including Plaintiff), for service of process on Defendant. Arrangements for physical delivery of summons and complaint: Plaintiff takes the necessary steps to * arrange for physical service of process on Defendant (e.g. instructing a court officer or a private bailiff). Attempt at physical delivery: An attempt to physically deliver summons and complaint to Defendant is 6 made. Second attempt at physical delivery: If a first attempt is not ordinarily successful, a second attempt to 7 physically deliver the summons and complaint to Defendant is required by law or standard practice. (Check ‘yes’ only if a first attempt at physical delivery is not ordinarily successful) * Proof of service: Plaintiff submits proof of service to court, as required by law or standard practice. Application for pre-judgment attachment: Plaintiff submits an application in writing for the attachment of * Defendant's property prior to judgment. Decision on pre-judgment attachment: Judge decides whether to grant Plaintif f’s request for pre- * judgment attachment of Defendant’s property and notifies Plaintiff and Defendant of the decision. Guarantees securing attached property: Plaintiff submits guarantees or bonds to secure Defendant 8 against possible damages to attached property. Pre-judgment attachment order: Defendant's property is attached prior to judgment. Attachment order 9 either involves physical attachment, or is achieved by freezing, registering, marking, or otherwise separating and restricting Defendant’s movement of specific moveable assets. Doing Business 2015 United States 88 No. New York City Procedures Custody of assets attached prior to judgment: If physical attachment is ordered, Defendant's attached 10 assets are placed in the custody or control of an enforcement officer or private bailiff. Hearing on pre-judgment attachment: A hearing takes place as a matter of law or standard practice to 11 resolve the question of whether Defendant’s assets can be attached prior to judgment. This process may include the submission of separate summons and petitions. Trial and judgment: Defendant files an answer to Plaintiff’s claim: Defendant files a written pleading which includes his answer 12 or defense on the merits of the case (see assumption 4). Framing of issues: Plaintiff and Defendant assist the court in framing issues on which evidence is to be 13 presented. Pre-trial conference on procedure: The judge meets with the parties to discuss procedural issues (for 14 example which applications and motions parties intend to file, which documents parties intend to rely on, etc.). Mediation hearing: The judge, during this informal meeting with the parties, encourages them to settle 15 the case (acting as mediator). The case cannot be settled, the judge may draft a pre-trial conference report, after which the case may be allocated to another judge for tr Request for interlocutory order: Defendant raises preliminary issues, such as jurisdiction, statute of * limitation, etc. Checked as ‘yes’ if commonly raised by the Defendant as a matter of practice, regardless of justification. Court’s issuance of interlocutory order: Court decides the preliminary issues the Defendant raised by * issuing an interlocutory order. Check as ‘yes’ if this is commonly the case in commercial cases. Plaintiff’s appeal of court's interlocutory order: Plaintiff appeals the court's interlocutory order, which 16 suspends the court proceedings. Check as ‘yes’ if an appeal by Plaintiff is common in this case. Discovery requests: Plaintiff and Defendant make requests for the disclosure of documents, attempting to * force the other party to reveal potentially detrimental documents. Check as ‘yes’ if discovery requests usually entail disputes. Discovery disputes: Following a request for discovery of documentary evidence by one of the parties, the 17 other party disputes the request and calls upon the judge to decide the issue. Check as ‘yes’ if discovery disputes are provided by law and commonly happen. Request for oral hearing or trial: Plaintiff lists the case for trial on the court’s calendar or applies f or the 18 date(s) for the oral hearing or trial. * Setting of date(s) for oral hearing or trial: Judge sets the date(s) for the oral hearing or trial. Pre-trial conference aimed at preparing for trial: The judge meets with parties to make practical 19 arrangements for the trial (for example, the number of witnesses parties intend to call on during trial, how much time each party is given to present oral arguments etc.). * List of (expert) witnesses: The parties file a list of (expert) witnesses with the court (see assumption 5-a). Trial (prevalent in common law): The parties argue the merits of the case at (an) oral session(s) before the 20 court. Witnesses and expert witnesses are questioned and cross-examined during trial. Doing Business 2015 United States 89 No. New York City Procedures Final arguments: The parties present their final factual and legal arguments to the court either by oral * presentation or by a written submission. 21 Notification of judgment in court: The parties are notified of the judgment at a court hearing. 22 Writing of judgment: The judge produces a written copy of the judgment. Registration of judgment: The court office registers the judgment after receiving a written copy of the 23 judgment. Appeal period: By law Defendant has the opportunity to appeal the judgment during a specified period. 24 Defendant decides not to appeal. Seller decides to start enforcing the judgment when the appeal period ends (see assumption 8). Order for reimbursement by Defendant of Plaintiff's court fees: The judgment orders Defendant to 25 reimburse Plaintiff for the court fees Plaintiff has advanced, because Defendant has lost the case. Enforcement of judgment: 26 Plaintiff advances enforcement fees: Plaintiff pays the fees related to the enforcement of the judgment. Attachment of enforcement order to judgment: The judge attaches the enforcement order (‘seal’) to the 27 judgment. Delivery of enforcement order: The court's enforcement order is delivered to a court enforcement officer * or a private bailiff. Identification of Defendant's assets by court official or Defendant for purposes of enforcement: The judge, 28 a court enforcement officer, a private bailiff or the Defendant himself identifies Defendant's movable assets for the purposes of enforcing the judgment through a sale of Defendant’s assets. Attachment: Defendant’s movable goods are attached (physically or by registering, marking or separating 29 assets). Call for public auction: Judge calls a public auction by, for example, advertising or publication in the 30 newspapers. 31 Sale through public auction: The Defendant’s movable property is sold at public auction. Distribution of proceeds: The proceeds of the public auction are distributed to Plaintiff (and, where 32 applicable, to other creditors, according to the rules of priority). Reimbursement of Plaintiff’s enforcement fees: Defendant reimburses Plaintiff's enforcement fees which 33 Plaintiff had advanced previously. 34 Payment: Court orders that the proceeds of the public auction or the direct sale be delivered to Plaintiff. No. Los Angeles Procedures Filing and service: * Not counted in the total number of procedures. Doing Business 2015 United States 90 Source: Doing Business database. Doing Business 2015 United States 91 RESOLVING INSOLVENCY A robust bankruptcy system functions as a filter, WHAT THE RESOLVING INSOLVENCY ensuring the survival of economically efficient INDICATORS MEASURE companies and reallocating the resources of inefficient ones. Fast and cheap insolvency proceedings result in the speedy return of businesses Time required to recover debt (years) to normal operation and increase returns to Measured in calendar years creditors. By improving the expectations of creditors Appeals and requests for extension are and debtors about the outcome of insolvency included proceedings, well-functioning insolvency systems can facilitate access to finance, save more viable Cost required to recover debt (% of debtor’s businesses and thereby improve growth and estate) sustainability in the economy overall. Measured as percentage of estate value What do the indicators cover? Court fees Doing Business studies the time, cost and outcome of Fees of insolvency administrators insolvency proceedings involving domestic legal Lawyers’ fees entities. These variables are used to calculate the recovery rate, which is recorded as cents on the Assessors’ and auctioneers’ fees dollar recouped by secured creditors through Other related fees reorganization, liquidation or debt enforcement (foreclosure) proceedings. To determine the present Outcome value of the amount recovered by creditors, Doing Whether business continues operating as a Business uses the lending rates from the International going concern or business assets are sold Monetary Fund, supplemented with data from piecemeal central banks and the Economist Intelligence Unit. Recovery rate for creditors In addition, Doing Business evaluates the adequacy Measures the cents on the dollar recovered and integrity of the existing legal framework by secured creditors applicable to liquidation and reorganization proceedings through the strength of insolvency Outcome for the business (survival or not) determines the maximum value that can be framework index. The index tests whether economies recovered adopted internationally accepted good practices in four areas: commencement of proceedings, Official costs of the insolvency proceedings management of debtor’s assets, reorganization are deducted proceedings and creditor participation. Depreciation of furniture is taken into The ranking of the Resolving Insolvency indicator is account based on the recovery rate and the total score of the Present value of debt recovered strength of insolvency framework index. The Strength of insolvency framework index (0- Resolving Insolvency indicator does not measure 16) insolvency proceedings of individuals and financial institutions. The data are derived from survey Sum of the scores of four component indices: responses by local insolvency practitioners and Commencement of proceedings index (0-3) verified through a study of laws and regulations as well as public information on bankruptcy systems. Management of debtor’s assets index (0-6) Reorganization proceedings index (0-3) Creditor participation index (0-4) Doing Business 2015 United States 92 RESOLVING INSOLVENCY Where does the economy stand today? Combination of quality regulations and efficient practice According to data collected by Doing Business, United characterize the top-performing economies. How States scores 3.0 out of 3 points on the commencement efficient are insolvency proceedings in United States? of proceedings index, 6.0 out of 6 points on the According to data collected by Doing Business, resolving management of debtor’s assets index, 3.0 out of 3 points insolvency takes 1.5 years on average and costs 8.2% of on the reorganization proceedings index, and 3.0 out of the debtor’s estate, with the most likely outcome being 4 points on the creditor participation index. United that the company will be sold as going concern. The States’s total score on the strength of insolvency average recovery rate is 80.4 cents on the dollar. Most framework index is 15.0 out of 16. indicator sets refer to a case scenario in the largest Globally, United States stands at 4 in the ranking of 189 business city of an economy, except for 11 economies for economies on the ease of resolving insolvency (figure which the data are a population-weighted average of the 11.1). The rankings for comparator economies and the 2 largest business cities. See the chapter on distance to regional average ranking provide other useful frontier and ease of doing business ranking at the end of benchmarks for assessing the efficiency of insolvency this profile for more details. proceedings in United States. Figure 11.1 How United States and comparator economies rank on the ease of resolving insolvency Doing Business 2015 United States 93 Source: Doing Business database. Doing Business 2015 United States 94 Figure 11.2 Recovery Rate (0-100) - United States Source: Doing Business database. Figure 11.3 Strength of insolvency framework index (0-16) - United States Source: Doing Business database. Doing Business 2015 United States 95 LABOR MARKET REGULATION Doing Business measures flexibility in the regulation of Doing Business 2015 presents the data for the labor employment, specifically as it affects the hiring and market regulation indicators in an annex. The report redundancy of workers and the rigidity of working hours. does not present rankings of economies on these This year, for the first time, the indicators measuring indicators nor include the topic in the aggregate distance flexibility in labor market regulations focus on those to frontier score or ranking on the ease of doing affecting the food retail industry, using a standardized business. Detailed data collected on labor market case study of a cashier in a supermarket. Also new is that regulations are available on the Doing Business website Doing Business collects data on regulations applying to (http://www.doingbusiness.org). The data on labor employees hired through temporary-work agencies as market regulations are based on a detailed survey of well as on those applying to permanent employees or employment regulations that is completed by local employees hired on fixed-term contracts. The indicators lawyers and public officials. Employment laws and also cover additional areas of labor market regulation, regulations as well as secondary sources are reviewed to including social protection schemes and benefits as well ensure accuracy. To make the data comparable across as labor disputes. economies, several assumptions about the worker and the business are used. Over the period from 2007 to 2011 improvements were made to align the methodology for the labor market The worker: regulation indicators (formerly the employing workers  Is a cashier in a supermarket or a grocery store indicators) with the letter and spirit of the International  Is a full-time employee Labour Organization (ILO) conventions. Only 6 of the 188  Is not a member of the labor union, unless ILO conventions cover areas measured by Doing membership is mandatory Business: employee termination, weekend work, holiday The business: with pay, night work, protection against unemployment  Is a limited liability company (or the equivalent and medical care and sickness benefits. The Doing in the economy) with 60 employees. Business methodology is fully consistent with these 6  Operates a supermarket or grocery store in the conventions. The ILO conventions covering areas related economy’s largest business city. For 11 to the labor market regulation indicators do not include economies the data are also collected for the the ILO core labor standards—8 conventions covering second largest business city. the right to collective bargaining, the elimination of  Is subject to collective bargaining agreements if forced labor, the abolition of child labor and equitable such agreements cover more than 50% of the treatment in employment practices. food retail sector and they apply even to firms that are not party to them. Between 2009 and 2011 the World Bank Group worked  Abides by every law and regulation but does not with a consultative group—including labor lawyers, grant workers more benefits than those employer and employee representatives, and experts mandated by law, regulation or (if applicable) from the ILO, the Organisation for Economic Co- collective bargaining agreements. operation and Development (OECD), civil society and the private sector—to review the methodology for the labor market regulation indicators and explore future areas of research. A full report with the conclusions of the consultative group is available at: http://www.doingbusiness.org/methodology/employing-workers. Doing Business 2015 United States LABOR MARKET REGULATION What are the details? The data reported here for United States are based on a Employment laws and regulations as well as secondary detailed survey of labor market regulation that is sources are reviewed to ensure accuracy. completed by local lawyers and public officials. Difficulty of hiring index Difficulty of hiring covers 4 areas: (i) whether fixed-term wage to the average value added per worker. The contracts are prohibited for permanent tasks; (ii) the average value added per worker is the ratio of an maximum cumulative duration of fixed-term contracts; economy’s GNI per capita to the working-age population (iii) the minimum wage for a cashier, age 19, with 1 year as a percentage of the total population. of work experience; and (iv) the ratio of the minimum New York City Los Angeles Difficulty of hiring index Data Data Fixed-term contracts prohibited for permanent tasks? No No Maximum length of a single fixed-term contract (months) No limit No limit Maximum length of fixed-term contracts, including renewals (months) No limit No limit Minimum wage applicable to the worker assumed in the case study 1379.37 1379.37 (US$/month) Ratio of minimum wage to value added per worker 0.21 0.21 Source: Doing Business database. Doing Business 2015 United States 97 LABOR MARKET REGULATION Rigidity of hours index Rigidity of hours covers 7 areas: (i) whether the premium for work on a weekly rest day (as a percentage workweek can extend to 50 hours or more (including of hourly pay); (v) whether there are restrictions on night overtime) for 2 months in a year to respond to a work; (vi) whether there are restrictions on weekly seasonal increase in workload; (ii) the maximum number holiday work; and (vii) the average paid annual leave for of days allowed in the workweek; (iii) the premium for workers with 1 year of tenure, 5 years of tenure and 10 night work (as a percentage of hourly pay); (iv) the years of tenure. New York City Los Angeles Rigidity of hours index Data Data 50-hour workweek allowed for 2 months a year in case of a seasonal Yes Yes increase in workload? Maximum working days per week 6.0 6.0 Premium for night work (% of hourly pay) 0% 0% Premium for work on weekly rest day (% of hourly pay) 0% 0% Major restrictions on night work? No No Major restrictions on weekly holiday? No No Paid annual leave for a worker with 1 year of tenure (in working days) 0.0 0.0 Paid annual leave for a worker with 5 years of tenure (in working days) 0.0 0.0 Paid annual leave for a worker with 10 years of tenure (in working 0.0 0.0 days) Paid annual leave (average for workers with 1, 5 and 10 years of tenure, 0.0 0.0 in working days) Source: Doing Business database. Doing Business 2015 United States 98 LABOR MARKET REGULATION Difficulty of redundancy index Difficulty of redundancy index looks at 9 questions: (i) whether the employer needs approval from a third party what the length is in months of the maximum to terminate 1 redundant worker; (vi) whether the probationary period; (ii) whether redundancy is employer needs approval from a third party to terminate disallowed as a basis for terminating workers; (iii) a group of 9 redundant workers; (vii) whether the law whether the employer needs to notify a third party (such requires the employer to reassign or retrain a worker as a government agency) to terminate 1 redundant before making the worker redundant; (viii) whether worker; (iv) whether the employer needs to notify a third priority rules apply for redundancies; and (ix) whether party to terminate a group of 9 redundant workers; (v) priority rules apply for reemployment. New York City Los Angeles Difficulty of redundancy index Data Data Maximum length of probationary period (months) 3.0 3.0 Dismissal due to redundancy allowed by law? Yes Yes Third-party notification if 1 worker is dismissed? No No Third-party approval if 1 worker is dismissed? No No Third-party notification if 9 workers are dismissed? No No Third-party approval if 9 workers are dismissed? No No Retraining or reassignment obligation before redundancy? No No Priority rules for redundancies? No No Priority rules for reemployment? No No Source: Doing Business database. Doing Business 2015 United States 99 LABOR MARKET REGULATION Redundancy cost Redundancy cost measures the cost of advance notice requirements and severance payments applicable to a requirements, severance payments and penalties due worker with 1 year of tenure, a worker with 5 years and when terminating a redundant worker, expressed in a worker with 10 years is considered. One month is weeks of salary. The average value of notice recorded as 4 and 1/3 weeks. New York City Los Angeles Redundancy cost indicator (in salary weeks) Data Data Notice period for redundancy dismissal for a worker with 1 year of 0.0 0.0 tenure Notice period for redundancy dismissal for a worker with 5 years of 0.0 0.0 tenure Notice period for redundancy dismissal for a worker with 10 years of 0.0 0.0 tenure Notice period for redundancy dismissal (average for workers with 1, 5 0.0 0.0 and 10 years of tenure) Severance pay for redundancy dismissal for a worker with 1 year of 0.0 0.0 tenure Severance pay for redundancy dismissal for a worker with 5 years of 0.0 0.0 tenure Severance pay for redundancy dismissal for a worker with 10 years of 0.0 0.0 tenure Severance pay for redundancy dismissal (average for workers with 1, 5 0.0 0.0 and 10 years of tenure) Source: Doing Business database. Social protection schemes and benefits & Labor disputes Doing Business collects data on the existence of unemployment protection schemes as well as data on whether employers are legally required to provide health insurance for employees with permanent contracts. Doing Business also assesses the mechanisms available to resolve labor disputes. More specifically, it collects data on what courts would be competent to hear labor disputes and whether the competent court is specialized in resolving labor disputes. Doing Business 2015 United States 100 New York City Los Angeles Social protection schemes and benefits & Labor disputes indicator Data Data Availability of unemployment protection scheme? Yes Yes Health insurance existing for permanent employees? No No Availability of courts or court sections specializing in labor disputes? No No Source: Doing Business database. Doing Business 2015 United States 101 DISTANCE TO FRONTIER AND EASE OF DOING BUSINESS RANKING This year’s report presents results for 2 aggregate defined as the total tax rate at the 15th percentile of the measures: the distance to frontier score and the ease of overall distribution for all years included in the analysis. doing business ranking, which for the first time this year For the time to pay taxes the frontier is defined as the is based on the distance to frontier score. The ease of lowest time recorded among all economies that levy the doing business ranking compares economies with one 3 major taxes: profit tax, labor taxes and mandatory another; the distance to frontier score benchmarks contributions, and value added tax (VAT) or sales tax. In economies with respect to regulatory best practice, addition, the cost to export and cost to import for each showing the absolute distance to the best performance year are divided by the GDP deflator, to take the general on each Doing Business indicator. When compared price level into account when benchmarking these across years, the distance to frontier score shows how absolute-cost indicators across economies with different much the regulatory environment for local entrepreneurs inflation trends. The base year for the deflator is 2013 for in an economy has changed over time in absolute terms, all economies. while the ease of doing business ranking can show only In the same formulation, to mitigate the effects of how much the regulatory environment has changed extreme outliers in the distributions of the rescaled data relative to that in other economies. for most component indicators (very few economies Distance to Frontier need 700 days to complete the procedures to start a business, but many need 9 days), the worst performance The distance to frontier score captures the gap between is calculated after the removal of outliers. The definition an economy’s performance and a measure of best of outliers is based on the distribution for each practice across the entire sample of 31 indicators for 10 component indicator. To simplify the process, 2 rules Doing Business topics (the labor market regulation were defined: the 95th percentile is used for the indicators are excluded). For starting a business, for indicators with the most dispersed distributions example, Canada and New Zealand have the smallest (including time, cost, minimum capital and number of number of procedures required (1), and New Zealand the payments to pay taxes), and the 99th percentile is used shortest time to fulfill them (0.5 days). Slovenia has the for number of procedures and number of documents to lowest cost (0.0), and Australia, Colombia and 110 other trade. No outlier was removed for component indicators economies have no paid-in minimum capital bound by definition or construction, including legal requirement (table 15.1 in the Doing Business 2015 index scores (such as the depth of credit information report). index, extent of conflict of interest regulation index and strength of insolvency framework index) and the Calculation of the distance to frontier score recovery rate (figure 15.1 in the Doing Business 2015 Calculating the distance to frontier score for each report). economy involves 2 main steps. First, individual Second, for each economy the scores obtained for component indicators are normalized to a common unit individual indicators are aggregated through simple where each of the 31 component indicators y (except for averaging into one distance to frontier score, first for the total tax rate) is rescaled using the linear each topic and then across all 10 topics: starting a transformation (worst − y)/(worst − frontier). In this business, dealing with construction permits, getting formulation the frontier represents the best performance electricity, registering property, getting credit, protecting on the indicator across all economies since 2005 or the minority investors, paying taxes, trading across borders, third year after data for the indicator were collected for enforcing contracts and resolving insolvency. More the first time. For legal indicators such as those on complex aggregation methods—such as principal getting credit or protecting minority investors, the components and unobserved components —yield a frontier is set at the highest possible value. For the total ranking nearly identical to the simple average used by tax rate, consistent with the use of a threshold in Doing Business . Thus Doing Business uses the simplest 6 calculating the rankings on this indicator, the frontier is 6 See Djankov, Manraj and others (2005). Principal components and unobserved components methods yield a ranking nearly identical to Doing Business 2015 United States 102 method: weighting all topics equally and, within each overall tax system. Instead, it is mainly empirical in topic, giving equal weight to each of the topic nature. The nonlinear transformation along with the components . threshold reduces the bias in the indicator toward 7 economies that do not need to levy significant taxes on An economy’s distance to frontier score is indicated on a companies like the Doing Business standardized case scale from 0 to 100, where 0 represents the worst study company because they raise public revenue in performance and 100 the frontier. All distance to frontier other ways—for example, through taxes on foreign calculations are based on a maximum of 5 decimals. companies, through taxes on sectors other than However, indicator ranking calculations and the ease of manufacturing or from natural resources (all of which are doing business ranking calculations are based on 2 outside the scope of the methodology). In addition, it decimals. The difference between an economy’s distance acknowledges the need of economies to collect taxes to frontier score in any previous year and its score in from firms. 2014 illustrates the extent to which the economy has closed the gap to the regulatory frontier over time. And Calculation of scores for economies with 2 cities in any given year the score measures how far an covered economy is from the best performance at that time. For each of the 11 economies for which a second city Treatment of the total tax rate was added in this year’s report, the distance to frontier score is calculated as the population-weighted average This year, for the first time, the total tax rate component of the distance to frontier scores for the 2 cities covered of the paying taxes indicator set enters the distance to (table 12.1). This is done for the aggregate score, the frontier calculation in a different way than any other scores for each topic and the scores for all the indicator. The distance to frontier score obtained for the component indicators for each topic. total tax rate is transformed in a nonlinear fashion before it enters the distance to frontier score for paying taxes. Table 12.1 Weights used in calculating the distance to As a result of the nonlinear transformation, an increase in frontier scores for economies with 2 cities covered the total tax rate has a smaller impact on the distance to Economy City Weight (%) frontier score for the total tax rate—and therefore on the Dhaka 78 distance to frontier score for paying taxes—for Bangladesh Chittagong 22 economies with a below-average total tax rate than it São Paulo 61 would have in the calculation done in previous years (line Brazil Rio de Janeiro 39 B is smaller than line A in figure 15.2 of the Doing Shanghai 55 China Business 2015 report). And for economies with an Beijing 45 extreme total tax rate (a rate that is very high relative to Mumbai 47 India the average), an increase has a greater impact on both Delhi 53 these distance to frontier scores than before (line D is Jakarta 78 Indonesia bigger than line C in figure 15.2 of the Doing Business Surabaya 22 Tokyo 65 2015 report). Japan Osaka 35 The nonlinear transformation is not based on any Mexico City 83 Mexico economic theory of an “optimal tax rate” that minimizes Monterrey 17 distortions or maximizes efficiency in an economy’s Lagos 77 Nigeria Kano 23 Karachi 65 Pakistan that from the simple average method because both these methods Lahore 35 assign roughly equal weights to the topics, since the pairwise Moscow 70 Russian Federation correlations among indicators do not differ much. An alternative to the St. Petersburg 30 simple average method is to give different weights to the topics, New York 60 depending on which are considered of more or less importance in the United States Los Angeles 40 context of a specific economy. Source: United Nations, Department of Economic and Social 7 For getting credit, indicators are weighted proportionally, according to their contribution to the total score, with a weight of 60% assigned Affairs, Population Division, World Urbanization Prospects, to the strength of legal rights index and 40% to the depth of credit 2014 Revision. http://esa.un.org/unpd/wup/CD- information index. Indicators for all other topics are assigned equal ROM/Default.aspx. weights Doing Business 2015 United States 103 Economies that improved the most across 3 or more Selecting the economies that implemented regulatory Doing Business topics in 2013/14 reforms in at least 3 topics and had the biggest improvements in their distance to frontier scores is Doing Business 2015 uses a simple method to calculate intended to highlight economies with ongoing, broad- which economies improved the ease of doing business based reform programs. The improvement in the the most. First, it selects the economies that in 2013/14 distance to frontier score is used to identify the top implemented regulatory reforms making it easier to do improvers because this allows a focus on the absolute business in 3 or more of the 10 topics included in this improvement—in contrast with the relative improvement year’s aggregate distance to frontier score. Twenty-one shown by a change in rankings—that economies have economies meet this criterion: Azerbaijan; Benin; the made in their regulatory environment for business. Democratic Republic of Congo; Côte d’Ivoire; the Czech Republic; Greece; India; Ireland; Kazakhstan; Lithuania; the former Yugoslav Republic of Macedonia; Poland; Ease of Doing Business ranking Senegal; the Seychelles; Spain; Switzerland; Taiwan, China; Tajikistan; Togo; Trinidad and Tobago; and the The ease of doing business ranking ranges from 1 to 189. United Arab Emirates. Second, Doing Business sorts these The ranking of economies is determined by sorting the economies on the increase in their distance to frontier aggregate distance to frontier scores, rounded to 2 score from the previous year using comparable data. decimals. Doing Business 2015 United States 104 RESOURCES ON THE DOING BUSINESS WEBSITE Current features Law library News on the Doing Business project Online collection of business laws and regulations http://www.doingbusiness.org relating to business http://www.doingbusiness.org/law-library Rankings How economies rank—from 1 to 189 Contributors http://www.doingbusiness.org/rankings More than 10,700 specialists in 189 economies who participate in Doing Business Data http://www.doingbusiness.org/contributors/doing- All the data for 189 economies—topic rankings, business indicator values, lists of regulatory procedures and details underlying indicators Entrepreneurship data http://www.doingbusiness.org/data Data on business density (number of newly registered companies per 1,000 working-age Reports people) for 139 economies Access to Doing Business reports as well as http://www.doingbusiness.org/data/exploretopics/ent subnational and regional reports, reform case repreneurship studies and customized economy and regional profiles Distance to frontier http://www.doingbusiness.org/reports Data benchmarking 189 economies to the frontier in regulatory practice Methodology http://www.doingbusiness.org/data/distance-to- The methodologies and research papers underlying frontier Doing Business http://www.doingbusiness.org/methodology Information on good practices Showing where the many good practices identified Research by Doing Business have been adopted Abstracts of papers on Doing Business topics and http://www.doingbusiness.org/data/good-practice related policy issues http://www.doingbusiness.org/research Doing Business iPhone App Doing Business at a Glance—presenting the full Doing Business reforms report, rankings and highlights for each topic for Short summaries of DB2015 business regulation the iPhone, iPad and iPod touch reforms, lists of reforms since DB2008 and a ranking http://www.doingbusiness.org/specialfeatures/ simulation tool iphone http://www.doingbusiness.org/reforms Historical data Customized data sets since DB2004 http://www.doingbusiness.org/custom-query Doing Business 2015 United States 105